German Finance Minister Claims US Tax Is The Most Confusing

Ulrika Lomas, Tax-news.com, Brussels

14 September 2000

European countries have been competing against one another in the battle of the tax cuts, but so far this year it is the package of tax cuts instituted by German Chancellor Gerhardt Schroder which have drawn the greatest attention. However, whilst they are generally seen to represent a huge triumph for Schroder, with German business being the big winner, there are still concerns that Germany's tax system is too complicated and could benefit from some kind of simplification, and there have been calls for the government to take steps towards making things easier. German finance minister Hans Eichel, however, this week said that Germany had nothing on the US, claiming that the Americans have the most confusing tax system of all.

Mr Eichel used a budget debate in the Bundestag to declare German tax law was "not the most complicated in the world. .. the answer to the question, who has the most complicated tax system is clear: the US." Mr Eichel said that his source was the Netherlands-based International Fiscal Association, which has as its aim "the study and advancement of international and comparative law in regard to public finance, specifically international and comparative fiscal law and the financial and economic aspects of taxation".

Mr Eichel's revelation will no doubt astound the Germans, who are eternally bemoaning a mind-boggling tax regime. For starters, there is the current complex procedure whereby domestic subsidiaries of big German groups are taxed separately at local level instead of group-wide. There is also a tax on dividends from foreign subsidiaries. Although taxed in the country of origin, such payments can sometimes be subject to higher German levies, in spite of double taxation treaties. The government is also thinking about looking at the local trading tax, called the Gewerbesteuer, which is levied as a proportion of turnover and goes towards funding local authorities. A very contentious tax, these levies have been criticised by businesses because they contribute significantly to the overall tax burden yet are subject to substantial local differences.

According to the Financial Times, the confusion surrounding the German system of taxation is borne out by the fact that some 95 per cent of specialist tax literature published worldwide is estimated to be in the German language. If the UK has enough tax advisers - around 11,000, then Germany has enough to cater for the whole of Europe with a staggering 60,000.

Mr Eichel claims this summer's tax package - which included a fall in corporation tax from 40 per cent to 25 per cent as well as cutting personal tax rates - had led to a 'dramatic simplification'. He said that Germans should 'give up this damaging debate (about the system's complexity) because it is not true.'

Professor Sven-Olof Lodin, the Swedish president of the IFA, told the Financial Times that he had spoken to Mr Eichel at his association's annual conference last week. Professor Lodin said: 'He asked me which corporate tax system was the most complicated and I said that it was difficult to say but the American system had become extremely complicated.' The basis for this is probably the regulations laid down by the US Internal Revenue Service on, for instance, cross-border transactions between companies, and on mergers. It may be that the US system is more complicated than Germany's, but Professor Lodin said that when Europe was taken as a whole, national differences created a considerably more confusing position, no doubt thinking about Germany when he spoke.

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