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Plan to Cut German Business Taxes Clears Final Hurdle

AP
Friday, 6 Jul 2007 | 6:52 AM ET

The German government's plan to reduce companies' tax burden cleared its final legislative hurdle Friday, winning approval from the upper house of parliament.

The bill, a key part of Chancellor Angela Merkel's economic reform agenda, will take effect on Jan. 1. It won a majority in the upper house -- which represents Germany's 16 states and is controlled by Merkel's left-right "grand coalition" -- after clearing the lower house in May.

The plan will reduce companies' total tax burden to a little under 30% from the current 38.65%, a move aimed both at improving German firms' competitiveness and ensuring that they pay their taxes at home.

The bill also foresees the introduction of a 25% capital gains tax from Jan. 1, 2009. That will replace the current practice of subjecting capital gains to personal income tax, which can be as high as 42%.

The Finance Ministry expects the measures to result in net tax relief to companies of nearly 5 billion euros ($6.8 billion) per year.

"This is an investment in Germany as a business location," Finance Minister Peer Steinbrueck told the upper house. "In particular, it aims to strengthen the tax base and makes domestic and foreign investments more attractive."

"With this 9% cut of nominal taxes to slightly below 30%, we finally get into the midfield of tax burdens compared with other European countries," Steinbrueck said.

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