German Government Under Pressure To Reintroduce CGT On Disposal Of Corporate Shareholdings

by Ulrika Lomas, Tax-News.com, Brussels

22 August 2002

It emerged, following his announcement earlier this week that the government intends to postpone 7 billion euros worth of business tax cuts planned for next year, in order to fund flood relief efforts, that German Chancellor, Gerhard Schroeder has come under pressure to reintroduce capital gains tax on profits from the sales of large corporate shareholdings.

The postponed second phase of tax reforms - originally intended as the centrepiece of the government's pre-election campaign - was intended to reduce the tax burden for German SMEs, but if small businesses are not going to receive any concessions until 2004, conservative challenger, Edmund Stoiber believes that the government should address the perceived bias in the current system towards large corporations.

Although there is likely to be widespread opposition from Germany's business community to the proposals to reintroduce the controversial tax, the Chancellor may eventually be forced to concede to Mr Stoiber’s demands, as his conservative coalition holds a majority in the Bundesrat (upper house of Parliament), which must approve Schröder’s decision to cancel the SME tax cut.

Finance Minister, Hans Eichel warned this week that the reintroduction of the tax in combination with falling stock markets may lead to a drop in the amount of revenue collected. However, the AFX news agency reported on Tuesday that Mr Eichel is himself considering increasing the tax burden on German companies from 25% to 26.5% in order to provide flood relief

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