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Germany to lower corporate tax rate

by wchurchill Thu Mar 15th, 2007 at 07:47:45 PM EST

It would appear this tax rate decrease is just about done.

FRANKFURT: The German government agreed Thursday on a plan to cut its average corporate tax rate in a bid to encourage investment in Europe's largest economy. The step will take Germany from having the highest levy in Europe to one that is broadly in line with the other rich countries of Western Europe.

After months of negotiations, the Christian Democrats and Social Democrats - which form the unwieldy coalition currently governing Germany - decided to reduce the average rate from 38.7 percent to about 29 percent beginning on Jan. 1, 2008.

Germany had been higher than most of Europe, and seems to think this puts them more in line, lower than some.
With an average corporate tax rate around 29 percent, Germany will be on about the same footing as Britain, which stood at 30 percent at the beginning of the year, according to the consultancy KPMG. France is now slightly higher, at 33 percent, while Italy at 37 percent.
The article stresses that Germany has had some pressure from their Eastern neighbors, as well as other countries in the EU and the rest of the world.
The chancellor then, Gerhard Schröder, a Social Democrat, pushed the idea in response to Germany's neighbors to the East, which embraced much lower rates.

Slovakia, for example, in 2003 adopted a 19 percent flat tax applying to sales, corporations and individuals.

Austria, whose economy is closely linked with its eastern neighbors, dropped its tax rate to 25 percent from 34 percent in 2004 - a sign that the mood was changing in richer parts of Europe. Now, the view that countries have no choice but to play the reduction game seems to have arrived in Germany.

"There is no disagreement between the coalition parties that we have to tax companies differently than in past decades," Roland Koch, the Christian Democrats' chief negotiator, said in announcing the agreement, Bloomberg News reported. "Today, we're exposed to international and European tax competition."

This puts much of Europe below US corporate tax rates of 35%, though to really compare one would have to look at the impact of graduated tax rates in the US and other countries, as well as available tax deductions.

Headline tax rates usually mean next to nothing, tax enforcement policy, in particular for transfer prices and relations with tax havens, is what really matters.

If a government chooses not to enforce the tax code then the effective tax rate is zero whatever the official number might be, and there is a long tradition of selective enforcement by various developped countries.

by Laurent GUERBY on Fri Mar 16th, 2007 at 06:56:13 AM EST
We in the UK have abolished Corporation Tax.

Well, not for Companies, but by creating Limited Liability Partnerships ("LLP's"), which are corporate bodies which can do everything a Company can do - but without the conflicts - and without themselves paying tax.

Instead, LLP Members pay tax in respect of the revenues or gains that flow through the LLP to them..

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Mar 16th, 2007 at 08:08:31 PM EST
[ Parent ]
but this is true for partnerships and sub chapter S in US as well.

can these LLP's raise money in the public markets--equity and debt?

by wchurchill on Sat Mar 17th, 2007 at 03:22:40 AM EST
[ Parent ]
And of course LLC's.

Debt, why not? If it's been done by a UK LLP, I haven't seen it.

As for "Equity", I am sure that has not been tried, but of course proportional "Equity Shares" are exactly what I am suggesting could be an optimal new "asset class", with more in common with units in a Canadian Income Trust than anything else.

Inside an LLP is a very strange twilight zone in accounting terms: a Member has an account with an LLP, and "Equity" and "Debt" are essentially continuous.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Mar 17th, 2007 at 08:30:29 AM EST
[ Parent ]
It's almost ridiculous to try to talk about baseline tax rates, because the enormous volume of deductions and credits can completely change the picture.  As I've mentioned before, back in, I think, 2002, I paid 28% of my income -- about $10,000 -- in taxes.  Dick Cheney, on income of about $2m, paid about 20%.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Mar 16th, 2007 at 09:54:00 AM EST
There is something to be said for the libertarian idea of a flat tax.

A flat tax with an exempt minimum is fairer than the current system.

"It's the statue, man, The Statue."

by Carrie (migeru at eurotrib dot com) on Fri Mar 16th, 2007 at 09:55:42 AM EST
[ Parent ]
A flat tax exempting people earning less than a certain level of income, would be alright with me.  Surely it would be preferable to the colossal mess we have right now.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Mar 16th, 2007 at 09:59:28 AM EST
[ Parent ]
a progressive tax with more than two level of taxation (which is what you are saying) without exemption and deductions would be fairer than both. Let's not throw the baby with the bathwater.

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Fri Mar 16th, 2007 at 11:46:57 AM EST
[ Parent ]
Why? There's no connection between flat and simplified. You could eliminate all deductions and make a progressive system more transparent (and cheaper), you can have a flat tax with the same faults as the current system. On a side note the top rate for state and local income tax in NYC is not marginal - i.e. if you qualify it applies to all your income, not just the amount above the threshold - it's known as the clawback provision.
by MarekNYC on Fri Mar 16th, 2007 at 04:07:41 PM EST
[ Parent ]
No, this is just propaganda.

Tax code complexity doesn't come from the number of tax levels (one or ten line in a table) but from the sheer number of tax exemption (99.99% of the content of your favourite tax code).

"Niche fiscales" in french. I use only two niches fiscales and I divide my income tax by two. Only 8599865 pages left in the tax code...

All tax exemptions should be unconstitutional everywhere.

If a government wants to give money to someone, the government should just write a check and book it in the budget. That way it would be fully transparent to everyone.

And remember that tax exemption are only for those who pay a decent amount of taxes, direct check can be to everyone, not just the rich.

by Laurent GUERBY on Fri Mar 16th, 2007 at 04:18:15 PM EST
[ Parent ]
Nothing says the flat tax must be low, just flat.

Say 30-40 % flat tax on all incomes above 10.000 euros. These first 10.000 are completely tax free.

Or to quote Carl Bildt: No one who pays tax should recieve state subsidies, and no one who recieves subsidies should pay tax.

Though that would really just be a transparency reform, but still.

It would be great if one coule merge capital and labor taxes in some way too. Income is income, no matter the source.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Mar 16th, 2007 at 07:00:56 PM EST
[ Parent ]
of course deductions etc matter, as I said
This puts much of Europe below US corporate tax rates of 35%, though to really compare one would have to look at the impact of graduated tax rates in the US and other countries, as well as available tax deductions.
but this is a significant change in policy regarding the treatment of corporations in Germany.  I frankly don't think your beef with your and Cheney's individual tax treatment (note individual, not corporate) has little to do with the issue.
by wchurchill on Sat Mar 17th, 2007 at 03:20:16 AM EST
[ Parent ]
germany is attempting to stimulate business. it needs to. right now there is little incentive for foriegn firms to locate in germany. from my perspective i can see that it is hard for outsiders here to do business here, the culture is very different from england/ireland/ us  model.

having said that i think it will take more than corporate tax cuts to create a desire to do more business here. there are so manythings that need moderization in this country that with out addressing other issues as well simply match corporate tax rates to the rest of europe will not provide enough incentive

Life is not a dress rehearsal

by johnfire (johnfire@christopherrehm.com) on Sat Mar 17th, 2007 at 03:56:15 PM EST

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