2008 corporate tax reform in Germany

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Basic data
Title: Corporate Tax Reform Act 2008
Abbreviation: UntStRefG non-official
Type: Federal law
Scope: Federal Republic of Germany
Legal matter: Tax law
Issued on: August 14, 2007
( Federal Law Gazette I p. 1912 )
Entry into force on: August 18, 2007
, January 1, 2008,
and January 1, 2009
Last change by: Art. 16 G of December 20, 2008
( Federal Law Gazette I p. 2850, 2858 )
Effective date of the
last change: 		December 25, 2008
(Art. 17 G of December 20, 2008)
GESTA : D047
Please note the note on the applicable legal version.

The 2008 corporate tax reform in Germany is a bundle of legislative measures that were implemented with the 2008 Corporate Tax Reform Act.

Legislative process

The draft law was passed by the Federal Cabinet on March 14, 2007 . The law was passed by the Bundestag on May 25, 2007 . The Federal Council approved the law on July 6, 2007. It came into effect on January 1, 2008 or, in the case of the flat tax, on January 1, 2009.

Goal of the tax reform

After the founding of the government, the corporate tax reform essentially pursued the following objectives:

  • Increasing the attractiveness of Germany as a business location by reducing the collective income tax burden for companies
  • Legal form neutrality (burden neutrality) and financing neutrality of corporate taxation
  • Improving planning security for companies and public budgets

The nominal tax burden on corporations fell from 38.6% in 2008 to 29.8%. This value applies to a reference assessment rate of 400 percentage points for trade tax. The actual tax burden could vary depending on the municipality.

By being able to choose a lower tax rate on retained profits, partnerships ( partnerships and sole proprietorships ) have been relieved ( retention benefit ): If a corresponding application is made, the tax rate is 28.25% instead of the collectively agreed income tax rate , which is up to 250,000 euros for incomes above up to 45%. The percentage of 28.25% corresponds to the above. 29.8%. With this, the legislature wants to avoid being disadvantaged compared to corporations. In the event of withdrawal, the profit withdrawn is taxed at 25%. The subsequent taxation is thus regulated in the same way as the taxation of distributions from corporations, which are charged with 25% flat tax . This is intended to equate accumulating partnerships with corporations. Whether or not the retention benefits result in tax relief depends on the point in time at which the retained profits are withdrawn and the shareholders' personal tax rate, as the total tax burden of 46.375% is in any case higher than the collectively agreed income tax burden.

Overall, there should be a net relief of 5 billion euros for the economy, which was, however, distributed very unevenly: The tariff reduction helped corporations with a lot of equity and few liabilities as well as high profits. Long-term profitable partnerships should also benefit significantly from the accumulation reserve. On the other hand, the new additions have resulted in additional burdens, particularly with regard to trade tax, for companies that pay high rents, leases or leasing rates.

Projected costs and financing

The Federal Ministry of Finance calculated tax shortfalls of 6.6 billion euros for 2008, as well as 7.1 and 5.3 billion euros in the two following years. The long-term net relief for companies was estimated at around 5 billion euros per year.

In order to finance, among others, the loss should the business expenses deduction of business tax , the abolition of the declining balance and the so-called interest barrier serve. To compensate for the municipalities' reduced trade tax income, the multiplier of the trade tax allocation was temporarily reduced.

Individual measures

  • Reduction of the previous corporate tax rate from 25% to 15%
  • Introduction of an interest barrier
  • The previous half-income method becomes the partial income method (60% of the proceeds are taxable) and only applies to distributions of profits, capital gains, etc. in connection with investments in corporations that are part of the business assets of sole proprietorships or partnerships or for profits from the sale of private investments in the sense of § 17 EStG (participation of at least 1% in the company capital within the last five years)
  • Elimination of the provisions on shareholder debt financing
  • Special tax rate of 28.25% plus solidarity surcharge and possibly church tax for retained profits for sole proprietorships and co-entrepreneurs of partnerships ( retention benefit ). If these retained profits are withdrawn later, they are subsequently taxed at a tax rate of 25%
  • Reduction of the trade tax index from 5% to 3.5%
  • Increase in the credit factor for trade tax for income tax from 1.8 to 3.8 and limit the credit to the trade tax actually paid
  • No business tax deduction for business expenses
  • Elimination of the graduated tariff for trade tax
  • Elimination of the 50 percent addition of long-term debt interest in the trade tax. In return, add-back of 25% of all borrowing costs and 25% of the financing shares of rents , leases , lease rates and license fees for trade tax
  • Securing the national tax base as well as regulations on relocating functions , buying shell and securities lending
  • Abolition of the declining balance depreciation
  • Limitation of immediate depreciation for low-value assets
  • Introduction of an investment deduction as part of the special depreciation according to § 7g EStG. Raising the business asset limit to € 235,000
  • Introduction of a 25 percent withholding tax on private investment income and capital gains from 2009; In this context, the requirements for accessing accounts by authorities and courts are being re-regulated.

criticism

  • Serious negative consequences were feared, especially for specialist retailers in city centers. The reason for this was the addition of part of the financing share of rents, leases and leasing installments to the commercial income. As a result, the overall result of the corporate tax reform was able to more than relieve the retail trade in expensive city-center locations. In response to this criticism, the financing share of rents and leases was reduced from originally 75% to initially 65% ​​(2009) and then 50% (from 2010).
  • The credit factor for income tax was considered too low. With the envisaged factor of 3.8, debit neutrality was only guaranteed up to a trade tax multiplier of 380 percent. For large cities with assessment rates of well over 380 percent, this meant a location disadvantage.
  • It was also feared that the deterioration in the depreciation conditions would put real investments at a disadvantage compared to financial investments.
  • According to an estimate by the tax expert Lorenz Jarass, the corporate tax reform of 2008 would not cause 5 billion euros but over 10 billion euros in tax losses per year. On the one hand, the regulation on the relocation of functions was predicted to be largely ineffective and the hoped-for self-financing effect (of 3.5 billion euros) was rejected as a mere hope. On the other hand, the abolition of the declining balance depreciation will not result in a permanent tax increase of 3 billion euros (as planned), but will only lead to an advance of tax revenues, which will be offset by correspondingly lower tax revenues in later years.

Reform reform

At the initiative of the Finance Committee of the Federal Council on April 3, 2009, the corporate tax reform was eased as part of the Citizens Relief Act (BR-Drucksache 168/1/09):

  • Temporary increase in the exemption limit for the interest barrier from currently 1 million euros ( Section 4h, Paragraph 2, Letter a EStG) to 3 million euros for the assessment periods 2008 to 2010;
  • Temporary insertion of a clause that preserves the loss carryforwards ( Section 8c KStG) in the event of restructuring.

The law was passed on June 19, 2009.

Due to the growth acceleration law, the above-mentioned corrections now apply permanently. B. the addition of rents to trade tax is reduced.

literature

Web links

Individual evidence

  1. ↑ Report on the corporate tax reform 2008, see table on page 10 (PDF; 1.3 MB)