Germany's Company Tax Cut Imminent

by Ulrika Lomas, Tax-News.com, Brussels

08 August 2001

The German finance ministry is set to introduce new measures next week that will simplify company taxation and tie up the loose ends of last year's extensive fiscal reform. Due to take effect from next year, the measures entail a fundamental reform of corporate taxation which will be reduced to 25% from the current rate of 40%.

The tax cut will significantly ease the tax burden on the foreign earnings of German companies and simplify the tax regime for corporate restructurings. But although Germany's business sector has welcomed the cuts which are expected to save it around DM1 billion (US$453 million) a year, it has also complained that further adjustments need to be made before they are on a level playing field with their foreign competitors. The sector is also unhappy that the government has only taken on board a small number of recommendations advised by a committee comprising industry specialists on tax reform.

However, perhaps the biggest blow to the business sector is the fact that the government continues to ignore a long-standing plea to address the issue of taxing corporate operations, i.e., a German-owned company is taxed on its activities throughout Germany by various local authorities, rather than being treated as a group and taxed by one central authority.

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