Germany Mulls Second Tax Simplification Law

by Ulrika Lomas, Tax-News.com, Brussels

25 January 2012

Financial experts of both ruling parties in Germany’s black-yellow coalition government have called for a second tax simplification package to be adopted in 2012 to further simplify German tax law, thereby continuing to reduce the bureaucratic burden on both businesses and individuals.

Underlining the need for a second series of measures, which are not just limited to businesses in Germany, the Christian Democratic Union (CDU) party’s Christian von Stetten recently argued that the government’s first tax simplification law (Steuervereinfachungsgesetz) was “too little”. Proposals are currently being collated, he added.

Financial expert of coalition partner the Free Democratic Party (FDP) Daniel Volk also underscored the need for further tax simplification measures to be introduced. Volk cited the need to significantly reduce administration costs for employers, incurred for example when calculating business travel expenses, and also alluded to the particular difficulties currently facing small- and medium-sized companies in Germany seeking to comply with administrative rules. Self-employed individuals would also benefit from certain changes, Volk pointed out.

German Finance Minister Wolfgang Schäuble has already announced plans to simplify the country’s corporate tax law. A working group has recently drafted a report outlining various concrete proposals.

Although the finance ministry maintains that it is willing to consider any tax simplification initiatives, it has nevertheless stipulated that any proposals must be cost neutral and must not lead to a shortfall in tax revenues.

Definitively adopted by the Bundesrat, or upper house of parliament, at the end of September last year, Germany’s 2011 tax simplification law aims to reduce bureaucracy, and to provide greater transparency and planning certainty in the country’s tax system.

The law contains measures designed to reduce the tax burden on both individuals and businesses in Germany as well as cut administrative costs by a total of EUR585m (USD791m).

The text provides crucially for an EUR80 increase in the tax-deductible business expense allowance for employees, rising from EUR920 currently to EUR1,000, and grants significant tax relief to parents, enabling individuals with childcare costs to deduct these from tax. The provision requiring verification of income for child benefit and the child tax allowance will also be waived, thus reducing costs for parents.

In accordance with the provisions, by 2013 a pre-completed tax declaration form will be available on the Internet for all taxpayers to complete.

FDP and CDU financial experts have called for the finance ministry to present a bill on a proposed 2012 tax simplification package in March at the latest.

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