28. June 2021 | Position
The chemical-pharmaceutical industry invests every year over 18 billion euros in Germany. In order to keep it this way, the incoming federal government needs to find the right answers to international tax policy developments: Since the last major reform back in 2008, little has been done to improve the fiscal conditions.
Quite the contrary, political decisions resulted in further burdens. For example, the assessment base was broadened considerably and there was a stealth increase of the trade tax. Against the backdrop of the corona pandemic, there are currently even calls for a wealth tax to finance the immense costs.
With growth out of the pandemic
For the companies in distress due to the pandemic, preserving liquidity is the top priority. This makes a readjustment in the offsetting of losses caused by corona even more important and urgent. Fair loss offsetting has direct effects and is no tax gift in an overall time perspective. Moreover, a tax reform should be launched just right now. This is because only an internationally competitive economy can provide tax revenues also in the long run. The opposite is the case at the moment: Germany is falling clearly behind in the international competition of business locations. In Europe, the tax rates for companies are below 21 percent on average – as compared with well over 30 percent in Germany. The announced increases in the USA and the UK from 21 to 28 percent and from 19 to 25 percent, respectively, do not change Germany’s negative leadership where the tax burden is concerned. Due to the stealth increase of the trade tax in many cities and communities, the tax burden for companies there has even risen to up to 35 percent.
Strong commitment to the location
Many internationally operating companies in Germany pay a disproportionately high share of their earnings taxes in this country: According to a VCI survey, some businesses realise only around 20 percent of their global sales in Germany, while this is where up to 60 percent of their worldwide earnings taxes become due. Add to this energy or real estate taxes. There are also positive revenue effects such as the wages and salaries tax (Lohnsteuer) and the employer’s contributions to social insurance because of the above-proportionately high number of staff in this country.
Reduce tax burdens
In view of the already high tax burden, a further tightening of the foreign transactions tax legislation (Außensteuerrecht) or double taxation in cross-border activities of companies in Germany must be avoided.
In a further step, the burden should be brought down to an internationally comparable level, i. e. it should be reduced at least to 25 percent.
THE VCI IS CALLING FOR THE FOLLOWING
- Bring about fair loss offsetting and reduce company tax
A fair consideration of corona losses is a highly effective lever to preserve the liquidity of companies in distress due to the pandemic. Also, the reform backlog must be tackled for Germany to keep pace internationally. Company tax should be brought down to an internationally competitive level of at least to 25 percent.
- Bring company tax law in a competitive form and cut bureaucracy
Germany needs a modern company tax legislation. The taxation of foreign activities should be no longer higher in Germany than the taxation of comparable domestic activities. Therefore, it should be possible at long last to offset foreign taxes in German trade tax, and the much too high “low tax country” threshold under the foreign transactions tax law (Außensteuergesetz) should be lowered from 25 to 15 percent.
- Avoid new burdens to strengthen companies
The OECD drafts for reorganising international tax legislations and for a global minimum taxation should be simplified radically, in order not to trigger a new avalanche of bureaucracy. A wealth tax means taxation on the substance of companies and would ruin them in the recession.
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