Scholz presented the corporate tax reform when he was still the federal finance minister.
(Photo: dpa)
Berlin Olaf Scholz (SPD) was full of praise for himself. The corporate tax reform, which he presented just over a year ago as Federal Minister of Finance, was an “important step towards strengthening the competitiveness of German family businesses,” he said enthusiastically when the law was passed. So far, however, companies are still reacting cautiously. So far, only a few companies have exercised the right to choose the type of company, as well as the option that enables partnerships to be taxed like a corporation in the future.
By November 30, 2021, the first application deadline, “to the knowledge of the Federal Government, around 150 applications for the option of corporate taxation had been made,” writes the Federal Ministry of Finance in a request from Left Party financial politician Christian Görke, which is available to the Handelsblatt.
“The fact that only around 150 applications for taxation under the option model were received shows that the reform was a tax gift for some large companies,” says Left Party finance politician Görke. “That could have been clear to everyone involved during the adoption, since both the majority of the experts and the Federal Council considered the proposal to be of only limited practical use.”
The reason for the reform in the previous year was an imbalance in corporate taxation that could no longer be overlooked. Partnerships – mostly family businesses – pay income tax like any normal employee, while corporations pay corporation tax to the Treasury.
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Actually, both types of company should be treated the same for tax purposes. But the pitfalls of German tax law mean that partnerships are usually disadvantaged for tax purposes.
The core problem
A core problem is retained profits. The tax regulations for this are so complex that many entrepreneurs capitulate to them – and do not even apply the rules that should actually bring them tax breaks.
The reform now gives partnerships the option of being taxed like a corporation. However, this new right to vote is obviously also provided with many pitfalls.
One reason for the low use so far is that the law was only approved by the Bundestag in June 2021. The preparation time for companies to decide on a change in taxation was therefore extremely short.
Economy: hurdles for change too high
But the economy also considers the reform to be inadequate overall. For example, individual companies have so far been denied the option. However, they represent the largest group of companies in Germany. Rainer Kambeck, tax expert at the Association of German Chambers of Industry and Commerce (DIHK), is still optimistic: “If the legislator makes adjustments here, many more companies will certainly make use of the regulation.”
However, there are a number of other problems. As early as the legislative process, it became clear “that the new regulation would meet with little acceptance,” said Kambeck. He identified the same reason for this as the association “Die Familienunternehmer”: “The hurdles to using the option model are set high by the legislature.”
Due to the unanimity principle for exercising the option, the model proves to be “in practice unsuitable in many cases,” the family entrepreneurs complain.
This applies in particular to companies with complex shareholder structures and family lines. Even more contentious is the option for commercial partnerships, which have anchored a three-quarters majority decision in the articles of incorporation.
The outvoted co-entrepreneurs must bear the legal consequences associated with the option without being able to mitigate the negative consequences that may arise for them.
High consultancy costs
Also due to the high consulting costs, an examination or a change of company form “should only be lucrative for large partnerships”, according to the family association. The applicability for medium-sized companies is thus “strongly limited”.
At the time of the reform, business had longed for a real tax cut, or at least a change in how retained earnings were taxed, rather than an option.
Scholz had always rejected these demands. The business associations see their criticism confirmed by the new figures, which show how poorly the reform has been accepted so far.
Whether something is happening on the subject remains to be seen. It was only with great effort that the FDP was able to achieve at least one small thing in the coalition negotiations on the subject: that the traffic light at least wants to talk about the subject.
More: The federal government wants to make most of the companies better off