German Government Mulls Corporate Tax Cuts

by Ulrika Lomas, Tax-News.com, Brussels

11 April 2006

Reports in the German media in the past few days have suggested that the Finance Ministry is working on plans to slash the corporate income tax burden on larger companies by as much as half, as part of an overall shake-up of Germany's unwieldy company tax system.

Citing sources from within the Ministry, German daily Die Welt reported on Saturday that corporate income tax could be cut to 15%, effectively pushing the overall tax burden for joint stock companies below 30%.

Meanwhile, the weekly magazine Der Spiegel reported yesterday that the government wants to cut the total amount of tax paid by joint stock companies from 38% to 25%, meaning corporate tax would effectively be cut in half to 12%.

At present, large companies in Germany pay a basic 25% corporate tax. However, this is on top of local company taxes, charged at around 13%, making a nominal corporate tax rate of 38% - one of the highest in Europe. Meanwhile, small and medium-sized firms are taxed on a different legal basis, on a scale of between 15% and 42%.

Germany's ruling coalition is set to spend the next two months examining plans for an overhaul of corporate taxes, and has pledged to reform the system by Jan. 1, 2008.

The Finance Ministry has dismissed the reports as speculative, and Finance Minister Peer Steinbrueck has stated that there will be no public announcements on new tax proposals until the summer.

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