Merkel Pledges To Close Capital Gains Tax Loophole

by Ulrika Lomas, Tax-News.com, Brussels

08 July 2005

German opposition leader, Angela Merkel has announced that she will seek to close a capital gains tax "loophole" if she is elected as the next Chancellor of Germany.

Speaking to Der Zeit, Mrs Merkel described the current capital gains tax law as "completely wrong" because it provided companies with what she considers to be unnecessary tax breaks.

Under tax reforms introduced in 2002 by Chancellor Gerhard Schroeder, companies which sold stakes in other groups were no longer required to pay capital gains tax. The move was a welcome one from a business perspective because it allowed companies, particularly in the banking and insurance sector, to unravel cross-shareholdings.

According to the Financial Times, a senior member of Mrs Merkel's Christian Democratic Union revealed that the tax is likely to be reintroduced in 2007 at a rate of 20%. Mrs Merkel herself has indicated that the loophole has to be closed before cuts in the headline rate of corporate tax can be considered due to the pressures on Germany's fiscal finances. "For that, we have to cut these generous exemption," she stated.

The tax debate continued to take centre stage as Schroeder's Social Democrats (SPD) unveiled their election manifesto earlier this week. Included among the SPD's election pledges are tax cuts for medium-sized businesses and a commitment to stick to the much vaunted 'Agenda 2010' welfare and labour market reforms.

However, in an attempt to appeal to the SPD's core working class vote, Schroeder is backing a new wealth tax proposal which will add an extra 3% on the top rate of income tax for individuals earning more than EUR250,000 (US$300,000) per year and couples earning more than EUR500,000 per annum.

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