German Corporate Tax Plans Expected In Late June

by Ulrika Lomas, Tax-News.com, Brussels

31 May 2006

Peer Steinbrueck, Germany's Finance Minister, is set to unveil the government's much anticipated plans to revamp the corporate tax system at the end of June - one month later than previously announced.

"We will have key points for the company tax reform and heritage tax reform before the summer break," German leader, Angela Merkel, told reporters.

"The finance minister will present proposals in the second half of June," she added.

The German coalition government has committed itself to a path of corporate tax reform in order to relieve the tax burden on the nation's companies - one of the highest in Europe - and in an attempt to simplify a system that has grown increasingly complex.

However, Steinbruek must work within the confines of Germany's large budget deficit, and will need to attempt to make any reforms and tax cuts revenue neutral - something which many leading economists and industrialists consider will be an impossible feat.

Currently, corporations in Germany pay about 39% in tax on profits, the combination of a 25% national levy and a 14% local corporate tax. Under plans reported in the national media, Steinbruek will attempt to halve the headline coporate tax rate to bring the overall burden down below 30%.

However, these reports suggest that the government has no plans to alter the system of taxation for small companies in Germany, which effectively pay income tax rather than corporate tax, at rates of up to 42%. In compensation, Financial Times Deutschland has reported that each partner in a small firm will be granted a tax-free profit allowance of up to EUR100,000, provided the money is spent on future investment in the business.

Some 85% of all German companies are smaller companies that are run by one person, or by a limited number of partners.

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