German cabinet okays corporate tax overhaul

14th March 2007, Comments 0 comments

14 March 2007, Berlin (dpa) - The German cabinet on Wednesday approved a draft law to overhaul company taxes despite opposition from within Chancellor Angela Merkel's coalition government. The law aims to cut the corporate tax burden - one of the highest in the industrialised world - by reducing the overall corporate tax rate to 29.8 per cent from the current level of 38.7 per cent. Due to come into force next year, the reform will be partly financed by the closure of tax loopholes and the introduction of

14 March 2007

Berlin (dpa) - The German cabinet on Wednesday approved a draft law to overhaul company taxes despite opposition from within Chancellor Angela Merkel's coalition government.

The law aims to cut the corporate tax burden - one of the highest in the industrialised world - by reducing the overall corporate tax rate to 29.8 per cent from the current level of 38.7 per cent.

Due to come into force next year, the reform will be partly financed by the closure of tax loopholes and the introduction of a 25 per cent capital gains tax in January 2009.

Finance Minister Peer Steinbrueck, who drafted the programme, said it would make Germany more attractive for investors and improve the state's financial capabilities in Europe's biggest economy.

The first three years of the reform are expected to see corporate tax revenues drop by 6.5 billion euros (8.4 billon dollars), instead of the original estimate of 5 billion euros.

But Steinbruek dismissed claims from members of his Social Democratic Party (SPD) that he was making an unjustified gift to employers at a time when individual tax breaks were disappearing.

"This is not a tax gift," the minister told a press conference in Berlin. "It is an investment in Germany as a place to do business."

The reforms also met with a mixed reception from businesses, with some companies saying what the government was giving with one hand it was taking away with the other.

Economics Minister Michael Glos, a member of the Bavarian wing of Merkel's Christian Democrats (CDU), complained that the bill did not provide enough relief to medium sized firms.

Glos said he would seek amendments to the legislature before it is passed by Germany's lower house of parliament, the Bundestag, before the summer recession begins in July.

The government plans to slash the headline corporate tax rate paid by large companies to 15 per cent in 2008. Private companies that reinvest their profits will also have their tax burden reduced.

One offsetting measure restricts the amount of interest on loans received from overseas units that German companies can deduct from taxable income.

Steinbrueck said the new measures would reduce to a minium the practice by which companies can transfer profits abroad and register their losses in Germany.

Experts estimate that 100 billion euros bypass the German tax authorities through this legal method of transfers.

The introduction of a 25 per cent capital gains tax from January 2009 will replace the current system, whereby capital gains are subject to personal income tax, which can be as high as 42 per cent.

The capital gains tax will apply to income from earned interest and dividends, and private investors' share sales.

DPA

Subject: German news

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