Berlin Finance Minister Christian Lindner (FDP) wants to strengthen Germany as a business location with a reform of corporate taxes. After a long period of preparation, the draft of his so-called “Growth Opportunities Act” is ready. According to information from the Handelsblatt from government circles, it provides for 50 tax policy measures. The relief volume should amount to around six billion euros per year.
The aim of the law was to “strengthen Germany’s competitiveness and open up scope for investments and innovations,” according to the Ministry of Finance. The most important measure is the introduction of an investment bonus: companies receive state support for certain investments in climate protection. In addition, Lindner intends to expand tax incentives for research. The offsetting of losses against future profits should also be made more generous.
The head of the employer-related Institute of the German Economy (IW), Michael Hüther, considers the measures to be “fundamentally correct”. However, the economist qualifies: “The dimension is not correct.” He criticizes that many measures such as the investment premium are limited to 2027. Ifo President Clemens Fuest says: “The direction is right, but the momentum is not very big.”
The Federal Ministry of Finance has been working on the law for months. Although Lindner repeatedly gave public references to the possible measures, he remained vague about the specific content. Finally, the finance minister argued with his cabinet colleagues about the federal budget for the coming year and called for savings. The Greens and Social Democrats saw the announcement of major tax cuts as a provocation.
In the meantime, the federal cabinet has approved the budget, which also includes a buffer for possible further measures by the coalition. The easing of corporate taxes could now be part of it.
However, the envisaged around six billion annually for the measures will probably not be achieved in the coming year, according to the Ministry of Finance. This is a rather generous calculation.
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“The package is based on very effective adjustment screws,” says Ifo President Fuest. “However, the planned fiscal volume for the stimulus is not very large.”
“Act to Strengthen Growth Opportunities, Investments and Innovation as well as Tax Simplification and Tax Fairness” is the full title of the law. Lindner will now submit the draft to the departmental vote. The 50 measures also include those that the economy has been waiting for for a long time. This is planned in detail:
investment premium
Under the slogan “super write-off” the coalition agreement announced: “We want to create an investment premium for climate protection and digital assets.” Actually, it should already apply for the years 2022 and 2023, but was then postponed by Lindner due to the economic situation.
It’s not the only change. Instead of a write-off, where companies can claim expenses for tax purposes, there is now a non-profit bonus. This will be 15 percent of the investment, up to a maximum of 30 million euros, according to government circles. It will be granted in the period from 2024 to 2027. “It should be paid out to increase liquidity and can therefore also have an effect in the event of losses,” it says.
Contrary to what was originally intended in the coalition agreement, the bonus only applies to investments that “improve the company’s energy and resource efficiency”, but not to digitalization projects.
This was already apparent. On the one hand, from the point of view of the experts in the Ministry of Finance, it is difficult to define what investments in digitization are eligible for funding. In addition, there were fears of problems with EU state aid law, which is more generous when it comes to climate protection.
Economist Hüther criticizes the limitation. “Restricting the investment award to climate neutrality does not go far enough,” said the IW boss. After all, digitization is what makes structural change possible in the first place. The time limit until 2027 “doesn’t really make sense,” says Hüther.
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Economist Fuest would have also wished for more. He refers to a study by the Ifo Institute. According to this, improved depreciation, which will lead to a relief of around 16 billion in the first year, can boost economic development so much that in the long term there will even be additional tax revenue and an almost three percent increase in economic output. “So such a reform has the character of an investment,” says Fuest. “The volume now planned is significantly lower.”
Lindner probably suspected that there would be criticism of the small dimensions. In the Handelsblatt interview at the beginning of July, he defended himself as a precaution and announced with regard to the investment premium: “Even if we start small, it should be expanded.”
Tax incentives for research
The former Minister of Finance and current Chancellor Olaf Scholz (SPD) introduced tax incentives for research in 2020 – after the economy had been demanding this in vain for years.
In particular, companies can claim wage costs for employees in research and development departments. In the case of small companies, costs for contract research by external providers are also taken into account.
Research in companies should also benefit from Lindner’s measures.
(Photo: IMAGO / Shotshop)
However, in order to avoid misuse and deadweight effects, research funding was limited. Initially, a maximum of two million euros could be claimed, later the assessment basis was increased to four million euros. The allowance is 25 percent, i.e. a maximum of one million euros.
Lindner is now planning a significant expansion: “We are improving tax-based research funding, tripling the previous assessment base and expanding the eligible expenses to facilitate innovation,” according to the Ministry of Finance.
offsetting losses
During the corona crisis, the federal government had expanded the offsetting of losses in order to improve the financial situation of companies during the crisis. Lindner now wants to keep the more generous rules, which would actually expire this year, in the long term.
“Growth opportunities also arise from the willingness to take entrepreneurial risks,” according to the Ministry of Finance. “We want to take that more into account.” Companies should not only be able to offset current losses against profits from the previous year, but up to three years back.
The federal government is concerned about Germany as a business location.
(Photo: imago images/Rupert Oberhäuser)
Loss offsetting is limited to EUR 10 million (EUR 20 million in the case of joint assessment). Originally, the limit was two million euros.
In addition, losses should also be easier to offset against future profits. In the period from 2024 to 2027, they want to “remove all restrictions” on loss carryforwards. After that, the maximum limits of ten or 20 million euros should also apply here.
tax simplification
Lindner wants to give partnerships more options when it comes to taxing their profits. This is to ensure that they are not taxed more severely than corporations.
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In addition, all companies should be able to write off smaller purchases more quickly, some even immediately. This leaves “more liquidity for small and medium-sized companies,” it said.
The law also provides for a number of other minor simplifications and a reduction in bureaucracy. The Treasury has high hopes for that. Since the funds in the budget are limited, one must concentrate on simplifications in addition to small relief, it said.
Combating tax dumping
In addition to the reduction and simplification of corporate taxes, the economy also expects some burdens in the planned law. In the future, companies will be obliged to report certain tax-saving models. So far, this has only applied to cross-border models, but in future it is to be extended to include national ones.
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In addition, “a legal regulation for the mandatory use of electronic invoices” is to be introduced. Certain tax-saving models for investment funds are also to be prevented.
In the meantime there have been considerations to pack these measures into a separate tax fairness law. But Lindner has apparently decided to pack everything into one big package of laws. This could make it easier to reach agreement with coalition partners.
The coalition parties have different opinions on tax cuts.
(Photo: dpa)
While the SPD and the Greens take a critical view of the tax cuts for companies, they absolutely want the measures against tax planning. The finance minister now has bargaining chips.
Praise for the legislative package comes from business. “The minister is making it easier for companies to take risks in economically difficult times,” said Rainer Kirchdörfer, Chairman of the Foundation for Family Businesses. This is an important signal, but Kirchdörfer expects a real corporate tax reform. “However, the constraints in the coalition must not prevent us from doing everything we can to make Germany competitive.”
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