Germany To Introduce Single Corporate Tax Rate By 2007

by Ulrika Lomas, Tax-News.com, Brussels

15 February 2005

German Finance Minister Hans Eichel has told a national newspaper that he is currently working on a new plan to simplify Germany’s complex corporate taxation structure which will bring about a single income tax rate for businesses.

“I am working on a form of taxing companies in a way that is neutral from their legal form," Eichel stated in an interview with Handelsblatt, adding that he was hopeful the reform could be completed by 2007.

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%.

Eichel also told Handelsblatt that he was in favour of a new form of European corporate tax harmonisation whereby a multinational firm's profits within the entire European Union would be aggregated and then divided according to the level of the firm's activities in each country.

According to Eichel, this would allow international businesses to be taxed at the national level, whilst curtailing their ability to use transfer pricing to reduce taxation.

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