German Elections Tax Planning Aspects. Status: 12 September 2013

Transcription

1 German Elections Tax Planning Aspects Status: 12 September 2013

2 Overview Corporations tax rate Partnerships Business taxation Tax deductibility of management / board member compensations Research and development / venture capital Income tax Capital income flat tax Reintroduction of wealth tax "Financial Transaction Tax" page 2

3 Introduction The German elections will take place on the 22 nd September million people are eligible to vote for the German Bundestag. All relevant political parties have a tax law agenda. Germany is currently governed by a centre right coalition made up of the Christian Democrats and the Liberal Democrats and headed by chancellor Angela Merkel. The opposition is made up of the Green Party, the Social Democrats and the Left Party ). Based on experiences from previous elections it is most likely German tax rules will be amended following September 22 nd In the following presentation we will highlight the potential impacts on business tax rules for German companies and investors, based on the tax law proposals by the respective parties. page 3

4 Corporations tax rate - No amendments of tax rate planned - In the long run, coordination of business tax rates within European Union Tax rate 25 % Tax rate proposed by - In the long run, minimum tax rate of 25% within the EU (together with a harmonised tax base) 15% Current tax rate structure* - Optional right to transparent taxation for smaller/ mid-size companies (like partnerships) 0 Income of corporation (in EUR) - Increase of tax rate to 25 % *Without solidarity surcharge and trade tax - changes rather unlikely - - option to transparent taxation interesting proposal (similar to "check the box" in the US) Page 4

5 Partnerships Corpo ration tax General partner GmbH 1% Income tax Limited partner 99% - Amendment of partner's tax privilege for retained profits (for smaller/mid-size companies) - Introduction of tax relief for equity-financed partnerships (notional interest deduction) - Removal of trade tax add-backs of expenses Mustermann GmbH & Co. KG* - significant changes rather unlikely *Transparent for income tax purposes. Proportional profits are directly allocated to and taxed in the hands of the partners (except for trade tax). page5

6 Business taxation (1/2) - Removal of tax privilege for capital gains - Review and potential tightening of interest-barrier rules and exit tax regime ("transfer of functions") - "Compulsory notification" of tax planning schemes - Opportunities for faster (progressive) tax depreciation for small/mid-size companies - "compulsory notification" of tax planning schemes hardly enforcable in practise - tightening of interest barrier and exit tax rules possible, could severely impact larger companies Page 6

7 Business taxation (2/2) - Introduction of cross-border tax consolidation (similar to Austria) - Implementation of notional interest deduction (tax benefit for equity-financed businesses) - Refusal to implement any taxes introduced at EU level - Abolition of solidarity surcharge until FY Trade tax relief (abolition of trade-tax add back) - VAT liability not for invoiced amounts but for revenues - New tax benefits for equity-financed companies (as opposed to debt-financed companies) - implementation of "notional interest deduction" possible, could be beneficial for companies with high equity ratios Page 7

8 Tax deductibility of management / board member compensations - Limitation on 50 % of compensation amounts exceeding EUR 500,000 p.a. - No tax deductibility of amounts exceeding Euro p.a. - No proposals - No tax deductibility of amounts exceeding Euro p.a. or of "exaggerated severance payments" - introduction of restrictions possible in the event of change of government Page 8

9 Research and development/ venture capital (1 / 2) - Tax relief for R&D to be considered - Improving tax environment for high-tech investors - Tax relief for R&D - Improved tax depreciation opportunities - only minor amendments to be expected Page 9

10 Research and development/ venture capital (2 / 2) - tax credit of 15 % for research expenditure for small businesses (up to 250 employees) - Improvement of tax incentives for venture capital and business angels - In general better tax incentives for R&D to the extent possible under budget restraints - only minor amendments to be expected Page 10

11 Income tax (1 / 2) 49% 45 % Tax rate - Cutback of "cold progression" effects (bracket creep due to inflation) - Tax rate of 49 % for income exceeding EUR 100,000 - Benefits for low earners ("negative income tax") 14 % Income (in EUR) Tax rate of 45 % for income exceeding EUR 60,000, 49% for income exceeding 80,000 - German income tax liability to be linked to German nationality, not only residence Current income tax rate structure Tax rate structure proposed by Tax rate structure proposed by Page 11

12 Income tax (2 / 2) 75 % 53 % Tax rate 14 % - "Tax brake": stipulation of principle of maximum 50% tax burden in German constitution - Cutback of the cold progression effects, review every other year - Tax rate of 53 % for income exceeding EUR 65, % Rich Tax for income exceeding EUR 1 Mio Income a change in government will likely incur higher taxes for higher income tax payers Current tax rate structure Tax rate proposed by Page 12

13 Capital income flat tax 45 % 42 % 32 % Tax rate 25 % 14 % Proposal Status Quo (flat rate) - Increase of flat tax rate from 25 % to 32 % - Review and potentially abolish in the long run - Abolition of flat tax, return to personal progressive income tax regime - Increase of tax allowances for capital income income Current tax rate (not including solidarity surcharge) - a change in government may incur an amendment of the current flat tax regime for capital income. Page 13

14 Reintroduction of wealth tax (1 / 2) - No wealth tax Assets - Introduction of wealth tax, tax relief for small/medium businesses, tax-free amounts for individuals - "one time" wealth charge for taxpayers owning more than EUR 1 milion of assets - In the long run, reintroduction of wealth tax consistent with constitutional principles - former German wealth tax was held to be unconstitutional by German Constitutional Court in 1995 Page 14

15 Reintroduction of wealth tax (2 / 2) Assets Introduction of wealth tax with tax-free amount of EUR 1 Mio, exceeding net assets to be taxed at 5% Tax-free amount raised to EUR 2 Mio for business assets of entrepreneurs/partnerships Increase of tax rates for higher income (up to 30 % for assets exceeding EUR 100 Mio.) - a change in government may potentially lead to a reintroduction of a wealth tax in Germany - constitutional aspects remain unresolved page 15

16 "Financial Transaction Tax" (1 / 2) In the long run, coordinated introduction together with several other EU Member States Introduction of financial transaction tax with large assessment base (including shares, bonds, derivatives) Tax charge not to be deductible for (corporate) income tax or trade tax purposes Page 16

17 "Financial Transaction Tax" (2 / 2) Introduction of financial transaction tax ideally in all EU Member States and covering also OTC transactions Penalty tax on transactions with tax havens Financial transaction tax with 0,1 % tax rate - if no change in government occurs a financial transaction tax may be introduced in the long run on an international level - in case of change in government Germany (governed by a left coalition) might introduce a tax on financial transactions. Page 17

18 Summary The election is scheduled to be held on Sunday, 22 September In case of a confirmation of the current centre-right government, tax increases are unlikely, but a financial transaction tax on a EU level will continue to be discussed. From a practical point of view tax reliefs for intragroup restructurings and tax groups as well as tax incentives for research and development would be helpful. Should a change in government take place, higher taxes as well as stricter tax rules for larger companies are a realistic consequence. A wealth tax as well as retroactively raising taxes would be problematic from a constitutional law point of view. Page 18

19 What can we do for you? Analysis of tax effects on individual tax planning Tax engineering of group structure, adaptation to revised tax laws Webinars and inhouse seminars Tax optimization of equity/debt financing structure Representation and advice in tax disputes and negotiations with tax authorities Page 19 Tax planning and federal election 2013

20 Prof. Dr. Patrick Sinewe Partner Tel. +49 (0) Dr. Henning Frase Associate Tel. +49 (0) Marcel Jundt Associate Tel. +49 (0) Alexander Bellheim Associate Tel. +49 (0) Thank you The content of this update is of general interest and is not intended to apply to specific circumstances. The content should not, therefore, be regarded as constituting legal advice and should not be relied on as such. In relation to any particular problem which they may have, readers are advised to seek specific advice. Further, the law may have changed since first publication and the reader is cautioned accordingly. Bird & Bird is an international legal practice comprising Bird & Bird LLP and its affiliated and associated businesses. Bird & Bird LLP is a limited liability partnership, registered in England and Wales with registered number OC and is regulated by the Solicitors Regulation Authority. Its registered office and principal place of business is at 15 Fetter Lane, London EC4A 1JP. The word "partner" is used to refer to a member of Bird & Bird LLP or an employee or consultant, or to a partner, member, director, employee or consultant in any of its affiliated businesses, who has equivalent standing and qualifications. A list of members of Bird & Bird LLP and of any non-members who are designated as partners, and of their respective professional qualifications, is open to inspection at our London office address. For details of Bird & Bird, our offices, our members, the use of and regulatory information, please see twobirds.com.