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Plan to Cut German Business Taxes Clears Final Hurdle

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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