Loss Making German Firms May Escape Local Tax Under New Plan

by Ulrika Lomas, Tax-News.com, Brussels

05 August 2003

German Chancellor Gerhard Schroeder has proposed a tax break for business that would free loss-making firms from the burden of paying local business taxes, as part of the government's drive to stimulate the economy.

According to a report in FT Deutschland this week, the Chancellor, along with Finance Minister Hans Eichel and Economy Minister Wolfgang Clement may decide during a meeting in Hanover to go ahead with a measure that would exclude interest, leasing and rent, amongst other items, from the tax base of local business taxes.

Reports have suggested however, that to compensate for loss of tax revenues, the self-employed may be made to pay business tax.

In addition, the Chancellor is said to be considering repealing a tax measure brought in by the previous German finance minister, Oskar Lafontaine, which compels individuals and small firms to pay the minimum income tax on their loss making investments. The law was designed to prevent wealthy investors from avoiding tax by offsetting income against losses. However, this measure could cost the government as much as 170 million euros in lost revenue, FT Deutschland has estimated.

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