Corporate Tax Reforms
November 3, 2006
German Chancellor Angela Merkel breathed a little easier Thursday as members of her government hammered out an agreement on a 5 billion euro ($6.4 billion) corporate tax reform plan, bringing an end to a long running battle over the controversial changes which have exposed tensions in the ruling coalition.
The plan, presented by Social Democrat Finance Minister Peer Steinbrück and Hesse state Premier Roland Koch, would cut Germany's corporate tax from 25 percent to 12.5 percent, which would result in the total effective tax burden on corporations falling from 38.5 percent to just below the 30-percent mark.
Both Koch and Steinbrück described the reform as "an enormous step" with the finance minister adding that the plan would help to strengthen Germany's attractiveness to business.
Berlin plans to finance the 5 billion euro cost of the reforms in part by dismantling tax breaks.
"This is a move in the right direction for the reform of corporate tax," said the Federation of German Industry chief Jürgen Thumann.
But Thumann added that more details of the changes were needed before a more comprehensive assessment of the proposed reform.
Making Germany more attractive
The corporate tax changes, which are due to come into force on Jan. 1, 2008, form a key part of the Merkel-led coalition's reform plans. Aimed in particular at helping to underpin Germany's small-to-middle sized business sector, the draft reforms are due to be presented to parliament by the middle of next year.
The reform aims to make Germany a more attractive place to do business, particularly for large corporations, which are increasingly moving operations to countries with lower tax rates, and to attract investment. The new tax rate would put Germany in the middle of the EU field.
The moves have been triggered largely by several new eastern European EU members who have slashed their corporate taxes and have become increasingly attractive as places to do business. Corporations in Poland, for example, pay 17.4 percent; in Estonia, the rate is 23 percent; and the standard corporate tax in Slovakia is fixed at 19 percent.