Global Tax Alert | 27 November 2013

Coalition agreement indicates future German tax policy priorities

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The parties forming Germany’s coalition government for the next four years, the conservative CDU/CSU (Christian Democrats) and the SPD (Social Democrats), have finally agreed on their policy priorities. The coalition agreement, setting out the focus areas of the next government, includes several important tax policy statements.

Among other things, the coalition parties plan to examine whether capital gains from the disposal of shares shall be subject to full corporate income tax (CIT), if the transferring company holds an equity interest of less than 10% in the transferred corporation (portfolio investments); under current CIT rules, only 5% of capital gains from portfolio investments are effectively taxed. This may require action this year, so affected taxpayers should consider alternatives to mitigate the potential impact of such change.

Further tax policy statements in the coalition agreement include:

  • No “big bang” tax reforms are to be expected over the next four years, and no rate increases (but also no decreases) are foreseen.
  • Significant change is planned for tax compliance procedures. Self-assessments should become a reality, and e-filing/-documentation will become more prevalent.
  • The Federal Central Tax Office’s role shall be strengthened, and it will take on a new role as the central point of contact for nonresidents, as well as for advance rulings.
  • International double non-taxation/double deductions will continue to be targeted; automatic transfer of information on a global scale to ensure higher transparency.
  • Support for a common corporate tax base (CCTB) in the EU (alignment of income determination rules).
  • Country-by-country-reporting according to European rules for the banking and commodity trading sectors, disclosed only to tax authorities.
  • Unilateral initiatives, if aims are not met by the OECD BEPS (base erosion and profit shifting) process:
  • Non-deductibility of payments to inactive shell companies
  • Public register for beneficiaries of trusts and similar structures
  • Deduction of royalties only where recipient is “appropriately” taxed
  • These measures may also be introduced “in advance” of expected international rules.
  • Tightening of conditions for tax neutrality of legal reorganizations (denial of tax neutrality in cases of “boot,” i.e., cash consideration paid).
  • “Modernization” (i.e., increase of basis) of real estate tax.

The coalition agreement is a policy document, which states the new government’s intentions for their lawmaking priorities over the next four years. It is not rare that the stated priorities are never implemented in practice (or not in the form suggested by the coalition agreement), but nonetheless the agreement provides a guideline of where taxpayers can expect initiatives. In contrast to the last government, the likelihood that any new tax laws being effectively blocked by legislative deadlock (different political majorities in upper and lower house of the German parliament, which both need to consent) is currently reduced because of the involvement of the main (former) opposition party (SPD) in the coalition government.

For additional information with respect to this Alert, please contact the following:

Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Munich
  • Christian Ehlermann
    +49 89 14331 16653
    christian.ehlermann@de.ey.com
Ernst & Young LLP, German Tax Desk, New York
  • Jorg Menger
    +1 212 773 5250
    jorg.menger@ey.com
  • Thomas Eckhardt
    +1 212 773 8265
    thomas.eckhardt@ey.com

EYG no. CM3999