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Tax Advice

Tax Policy Plans in the New Federal Government's Coalition Agreement

The new Grand Coalition is in place. The coalition agreement of February 7, 2018 will be basis for future government work. The agreement also includes tax policy plans.

Tax Policy Plans in the New Federal Government's Coalition Agreement © Thinkstock

I. Dif­fi­cult Coa­li­tion For­ma­tion

The pre­vious gover­ning par­ties, CDU/CSU and SPD, suf­fe­red con­s­i­de­ra­ble los­ses in the federal elec­ti­ons on Sep­tem­ber 24, 2017. After they were unable to form a govern­ment with the part­ners they pre­fer­red, the par­ties began lengthy coa­li­tion nego­tia­ti­ons. The "Jamaica Coa­li­tion" ini­tially favo­red by the CDU/CSU as the stron­gest par­ties, con­sis­ting of CDU/CSU, FDP and the Gre­ens, fai­led after weeks of nego­tia­ti­ons. On elec­tion night, the SPD had cate­go­ri­cally ruled out parti­ci­pa­tion in a govern­ment with the CDU/CSU as a part­ner. Finally, at the insis­tence of the Federal Pre­si­dent, it began coa­li­tion nego­tia­ti­ons at the begin­ning of 2018. On February 7, 2018, a coa­li­tion agree­ment was sig­ned bet­ween the CDU/CSU and the SPD, alt­hough this was sub­ject to appro­val by the par­ties. The final hurdle to be over­come was the vote of the mem­bers of the SPD, which was held on March 4, 2018 and resul­ted in a 66% vote for the rene­wed for­ma­tion of a Grand Coa­li­tion.

The coa­li­tion agree­ment con­ta­ins nume­rous sta­te­ments on the new federal govern­ment's tax policy plans for the 19th legis­la­tive period. In addi­tion to the objec­tive of a balan­ced bud­get wit­hout new debt and a reduc­tion of the gene­ral govern­ment debt ratio to below 60% of gross domestic pro­duct, the fol­lo­wing tax policy objec­ti­ves are pur­sued. The infor­ma­tion in paren­the­ses indi­ca­tes where such sta­te­ments can be found in the coa­li­tion agree­ment.

II. Busi­ness Taxa­tion

1. Tax Bene­fits
Rese­arch-based small and medium-sized enter­pri­ses in parti­cu­lar are to bene­fit from tax incen­ti­ves for rese­arch (p. 13). Tax incen­ti­ves are to be app­lied to per­son­nel and con­tract costs for rese­arch and deve­lop­ment, and pro­ject fun­ding for small and medium-sized enter­pri­ses is to be con­ti­nued (p. 59).

For com­mer­cially used elec­tric vehi­c­les, a spe­cial write-off of 50% in the year of purchase, limi­ted to five years, is to be intro­du­ced (p. 77).

After a con­sti­tu­tio­nal review, the rec­lai­ming of resi­den­tial land from far­mers is to be impro­ved by tax-effec­tive oppor­tuni­ties to invest in ren­tal hou­sing con­struc­tion (p. 109).

2. Start-ups
The app­li­ca­tion, appro­val and taxa­tion pro­ce­du­res are to be sim­p­li­fied for busi­ness start-ups. A "one-stop shop" is men­tio­ned as the desi­red goal (p. 62).

The new govern­ment will exa­mine whe­ther to intro­duce tax incen­ti­ves to mobi­lize pri­vate ven­ture capi­tal beyond the exis­ting mea­su­res (p. 62).

3. Inter­na­tio­nal Tax Law
Efforts to fairly tax large cor­po­ra­ti­ons, parti­cu­larly Inter­net com­pa­nies such as Google, Apple, Face­book and Ama­zon, are to be sup­por­ted (p. 7).

The intro­duc­tion of a com­mon, con­so­li­da­ted basis of assess­ment and the estab­lish­ment of mini­mum cor­po­rate tax rates in the EU are to be sup­por­ted (pp. 8, 13, 69). Toge­ther with France, Ger­many is to take unspe­ci­fied ini­tia­ti­ves to res­pond to inter­na­tio­nal chan­ges and chal­len­ges, espe­cially in the Uni­ted Sta­tes (p. 69).

The role of the Federal Cen­tral Tax Office is to be streng­t­he­ned. It is to become the cen­tral point of con­tact for non-resi­dents on tax issues and bin­ding infor­ma­tion (p. 69).

The aim is to create fair tax com­pe­ti­tion con­di­ti­ons for cross-bor­der busi­ness acti­vi­ties by imp­le­men­ting the OECD BEPS gui­de­li­nes as broadly as pos­si­ble world­wide. To this end:

  • the obli­ga­ti­ons under the EU Anti-Tax Avo­i­dance Direc­tive are to be trans­po­sed into Ger­man law, in the inte­rest of Ger­many as a busi­ness loca­tion,
  • the CFC rules are to be moder­ni­zed,
  • hybrid regu­la­ti­ons are to be sup­p­le­men­ted and
  • the inte­rest deduc­tion cap is to be adjus­ted (p. 69).
4. Taxa­tion of the Digi­tal Eco­nomy
Mea­su­res for appro­priate taxa­tion of the digi­tal eco­nomy are to be taken (p. 69).

Legal regu­la­ti­ons will be sought to com­bat VAT fraud when buying and sel­ling goods on the Inter­net. To this end, ope­ra­tors of elec­tro­nic mar­ket­places that do not pre­vent dis­ho­nest mer­chants from tra­ding via their mar­ket­place are to be char­ged for the unpaid sales tax. Ope­ra­tors are to be requi­red to pro­vide infor­ma­tion about the mer­chants active on their plat­forms (p. 69).

5. Bureau­cracy Reduc­tion
Bureau­cracy is to be redu­ced in the tax field through timely tax audits and a review of tax thres­holds (p. 63). In addi­tion, sta­tisti­cal obli­ga­ti­ons are to be redu­ced, with relief from Euro­pean repor­ting obli­ga­ti­ons to be app­lied to com­pa­nies with up to 500 emp­loyees (p. 63).

The digi­ta­liza­tion of the admi­ni­s­t­ra­tion is to be expan­ded to create a cen­tral, uni­form digi­tal por­tal for citi­zens and busi­nes­ses, so that data can be input one time and then used for a variety of taxes (p. 63).

6. Sales Tax and Duties
The new govern­ment coa­li­tion wants to pro­mote the app­li­ca­tion of the redu­ced VAT rate at Euro­pean level for com­mer­cially tra­ded works of art, e-books, e-papers and other elec­tro­nic infor­ma­tion media (p. 171).

The col­lec­tion and refund pro­ce­dure for import sales tax is to be opti­mi­zed in order to eli­mi­nate com­pe­ti­tive disad­van­ta­ges for Ger­man indu­s­trial and tra­ding com­pa­nies, as well as air­ports and sea­ports (p. 69).

All areas of the Customs admi­ni­s­t­ra­tion are to be streng­t­he­ned, inclu­ding the hand­ling of inter­na­tio­nal trade flows, parti­cu­larly by adding per­son­nel (p. 69).

7. Real Estate Trans­fer Tax
After com­p­le­tion of the audit work by the federal and state govern­ments, an effec­tive and legally bin­ding legal regu­la­tion is to be imp­le­men­ted in order to end abu­sive real estate trans­fer tax struc­tu­res by means of share deals. The Ger­man sta­tes should be able to use the addi­tio­nal reve­nue gene­ra­ted to reduce tax rates (p. 110).

III. Taxa­tion of Emp­loyees

With regard to flat-rate com­pany car taxa­tion, it is plan­ned to intro­duce a redu­ced rate of 0.5% of the domestic list price for e-vehi­c­les (elec­tric and hybrid vehi­c­les) (p. 77). Under cur­rent regu­la­ti­ons, a bene­fit in kind amo­un­ting to 1% of the gross new list price is taxable each month for pri­vate use of the com­pany car.

IV. Indi­vi­dual Taxa­tion

1. Tax Relief for Citi­zens
The tax bur­den on citi­zens is not to be inc­rea­sed (p. 12). Ins­tead, a report is to be sub­mit­ted every two years on bra­cket creep, and the income tax rate is to be adjus­ted accor­din­gly (pp. 53, 68). In addi­tion, there are plans to con­s­i­der an adjust­ment of the flat-rate tax allo­wan­ces for people with disa­bi­li­ties (p. 53).

The soli­da­rity surch­arge is to be pha­sed out. A clear first step in this direc­tion is to be taken begin­ning in 2021, and lower and middle inco­mes are to be relie­ved by intro­du­cing an exemp­tion limit (with a sli­ding zone). This should com­p­le­tely exempt around 90% of tax­pay­ers from the soli­da­rity surch­arge (pp. 12, 53).

2. Real Estate
To pro­mote the crea­tion of hou­sing in the affor­da­ble ren­tal seg­ment, tax incen­ti­ves are plan­ned for pri­va­tely finan­ced new hou­sing con­struc­tion (p. 16). Spe­ci­fi­cally, a spe­cial write-off is to be intro­du­ced, limi­ted until the end of 2021, which can be clai­med in addi­tion to straight-line dep­re­cia­tion and amo­unts to 5% per year over four years (p. 110).

Energy-effi­ci­ent buil­ding reno­va­ti­ons are to be pro­mo­ted for tax pur­po­ses. To do so, tax­pay­ers are to be allo­wed to apply for a sub­s­idy or a reduc­tion in taxable income (p. 114).

Fami­lies are to be sup­por­ted in acqui­ring home ownership with a hou­sing-rela­ted child bene­fit of 1,200 euros per child per year (p. 16). This bene­fit is to be paid over a period of 10 years and is to be imp­le­men­ted across the board, up to an income limit of 75,000 euros taxable hou­se­hold income per year, plus 15,000 euros per child (p. 110).

The new govern­ment is to exp­lore the pos­si­bi­lity of gran­ting a tax-free allo­wance for land trans­fer tax on the first acqui­si­tion of resi­den­tial pro­per­ties for fami­lies (p. 110).

3. Invest­ment Income
The flat-rate with­hol­ding tax on inte­rest income is to be abo­lis­hed. This is jus­ti­fied by the estab­lish­ment of an auto­matic infor­ma­tion exchange. Cir­cum­ven­tion is to be pre­ven­ted (p. 69).

The intro­duc­tion of a sub­stan­tial finan­cial tran­sac­tion tax at EU level is to be com­p­le­ted (pp. 8, 69).

4. Fami­lies
In order to achieve an equi­ta­ble dis­tri­bu­tion of the tax bur­den bet­ween spou­ses, spou­ses with tax class com­bi­na­tion III/V are to be regu­larly infor­med in tax assess­ments about the fac­tor pro­ce­dure and the pos­si­bi­lity of a change (p. 68).

The child bene­fit is to be inc­rea­sed by 25 euros per month (p. 11). The child bene­fit is to inc­rease by 10 euros as of July 1, 2019, and by a furt­her 15 euros as of January 1, 2021. At the same time, the allo­wance for depen­dent child­ren is to be adjus­ted accor­din­gly (p. 19).

5. Vol­un­tee­rism
Civic enga­ge­ment and vol­un­tee­rism is to be pro­mo­ted through tax relief for vol­un­te­ers (p. 118).

6. Tax Sim­p­li­fi­ca­tion
The abi­lity of citi­zens to com­mu­ni­cate with the tax aut­ho­ri­ties elec­tro­ni­cally is to be expan­ded (p. 68). The aim is to intro­duce a pre-fil­led tax return for all tax­pay­ers by the 2021 assess­ment period (p. 68).

V. Pro­perty Tax

Pro­perty tax is to be put on a fixed basis and thus secu­red as an important source of income for the muni­ci­pa­li­ties (p. 16). Fol­lo­wing a con­sti­tu­tio­nal review, the legal basis is to be crea­ted so that muni­ci­pa­li­ties can improve the mobi­liza­tion of buil­ding land through tax mea­su­res. Spe­ci­fi­cally, the intro­duc­tion of a "pro­perty tax C" is inten­ded to enable towns and muni­ci­pa­li­ties to improve the availa­bi­lity of land for resi­den­tial pur­po­ses (p. 109).

VI. Fair Taxa­tion

Tax dum­ping, tax fraud and avo­i­dance, and money laun­de­ring are to be com­ba­ted both inter­na­tio­nally and in the EU (pp. 7, 69).

Fis­cal con­trols, eco­no­mic coor­di­na­tion in the EU and the euro zone and the fight against tax fraud and aggres­sive tax avo­i­dance are to be pro­mo­ted (p. 9, 13).

In order to pro­mote fair tax enfor­ce­ment, assets acqui­red from a crime and all unla­w­ful pro­fits are to be con­sis­tently con­fi­s­ca­ted (p. 69).

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