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Germany Closes More Tax Loopholes

by Ulrika Lomas,, Brussels

22 December 2005

The German cabinet has backed plans to close off a number of tax loopholes which the Finance Ministry has calculated will bring in an additional EUR815 million (US$975 million) in revenues annually by 2010.

According to a Finance Ministry statement, the measures seek to thwart tax evasion in six areas including the personal use of company cars and the trading of gasoline receipts on the internet.

The measures are scheduled to go into effect next year and will increase revenues by EUR260 million in the first year for the federal government, the 16 state governments and municipalities.

The Finance Ministry justified the move by stating that the new laws will contribute to "the further stabilization of the tax base and hence directly to greater justice in taxation."

"It also enforces the constitutional principle of uniformity of taxation," the ministry added.

The grand coalition led by Chancellor Angel Merkel has pledged to close a number of tax loopholes as the new government seeks to narrow the country's EUR35 billion budget deficit in order to bring its finances back into line with the European Union's Stability and Growth Pact.

Last month, the government announced that a tax break for investors in certain funds will be scrapped in a bid to recoup around EUR2 billion annually in lost tax revenues. As a result, individuals who invest in specialist closed funds, such as those concerned with film and media financing, shares in commercial shipping operations, wind farms and leasing, will no longer be permitted to write off losses against income tax.

The new rules will affect all closed funds which were launched after November 10, including all shares in these funds acquired after the same date.

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