The German parliament on Friday decided to slash corporate tax by 9 percent, starting next year. Finance Minister Peer Steinbrück said the move will improve Germany's standing on the global market.
Big German companies will have more in their coffers starting in 2008
The German parliament on Friday paved the way for the country’s biggest corporate tax reform in post-World War II history, which would put its rates on par with the rest of Europe. As of Jan. 1, 2008, corporate tax will be lowered to 30 percent from the current rate of 39 percent -- the highest in the European Union.
"This corporate tax reform will make Germany a more attractive place for investment," said Steinbrück. He added in an interview broadcast on public radio Friday that all citizens would benefit from the reform because tax revenues would actually increase, at least in the mid-term, though critics have warned of an initial loss of around 5 billion euros ($3.7 billion).
The bill, which is expected to be approved by Germany's upper parliamentary house before the summer recess, would also prevent companies from getting tax benefits in Germany by taking loans via subsidiaries abroad.
A "blessing of billions"
Finance Minister Steinbrueck said the reform will make Germany attractive to investors
Criticism of the reform has come mainly from the leftist fraction, the Free Democratic Party (FDP) and the Greens. Chairman of the Left Party's parliamentary group, Oskar Lafontaine, called the corporate tax bill a "blessing of billions for big business," adding that it would be better to adjust income tax rates for small companies.
Jan Paul Bach, the owner of a 15-employee company near Berlin that produces high-tech ceramic elements, said the changes were necessary for Germany to keep up in the global marketplace.
"I think the tax reform is necessary to compete with new economies like China or India, which have lower ages and a better position in the global economy," Bach told Deutsche Welle. He added, however that he didn't think it was fair that "big companies pay lower taxes while the employees have to pay higher taxes."
To make up for the cuts, Germany is abolishing tax holidays, which have mainly benefited multinationals.
An inheritance tax reform is also in the works, on the initiative of the Social Democratic Party, which is part of a series of tax adjustments meant to offset the corporate tax reform.