German Cabinet Approves Tax Cut Measures

by Ulrika Lomas, Tax-News.com, Brussels

05 May 2005

German Chancellor Gerhard Schroeder's Cabinet has approved plans to cut corporate and inheritance taxes.

One draft law approved by ministers on Wednesday aims to cut the basic tax rate on earnings at companies to 19% from 25% in 2006. Another bill seeks to defer payments of inheritance tax by people who inherit family-owned businesses, exempting heirs if they continue to run the companies for 10 years.

Under the draft inheritance-tax rules, the levy will be progressively reduced by a tenth for every year the heir keeps the company in business, on the proviso that the company in question is worth less than EUR100 million.

Both tax bills were part of Schroeder's 20-point plan to boost economic growth, unveiled to parliament on March 17.

While the opposition Christian Democratic Union back the plans, debate continues over the funding of the tax cut, with the opposition insisting that the cut is properly costed and not funded on credit.

Eichel, who is calling for the laws to be passed before parliament's summer break is reportedly reconsidering a proposal to increase the rate of dividend tax to help meet the revenue shortfall resulting from a corporate tax cut.

The planned corporate-tax cut would lower the overall tax burden on large companies to 33.4% from 38.7%, including local taxes.

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