Tax Policy Plans in the New Federal Government's Coalition Agreement

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I. Difficult Coalition Formation

The pre­vious go­verning par­ties, CDU/CSU and SPD, suf­fe­red con­side­ra­ble los­ses in the fe­deral elec­tions on Sep­tem­ber 24, 2017. Af­ter they were unable to form a go­vern­ment with the part­ners they pre­fer­red, the par­ties be­gan lengthy co­ali­tion ne­go­tia­ti­ons. The "Ja­maica Co­ali­tion" in­iti­ally fa­vored by the CDU/CSU as the stron­gest par­ties, con­sis­ting of CDU/CSU, FDP and the Greens, fai­led af­ter weeks of ne­go­tia­ti­ons. On elec­tion night, the SPD had ca­te­go­ri­cally ru­led out par­ti­ci­pa­tion in a go­vern­ment with the CDU/CSU as a part­ner. Fi­nally, at the in­sis­tence of the Fe­deral Pre­si­dent, it be­gan co­ali­tion ne­go­tia­ti­ons at the be­gin­ning of 2018. On Fe­bru­ary 7, 2018, a co­ali­tion agree­ment was si­gned bet­ween the CDU/CSU and the SPD, alt­hough this was sub­ject to ap­pro­val by the par­ties. The fi­nal hurdle to be over­come was the vote of the mem­bers of the SPD, which was held on March 4, 2018 and re­sul­ted in a 66% vote for the re­ne­wed for­ma­tion of a Grand Co­ali­tion.

The co­ali­tion agree­ment con­ta­ins nu­me­rous state­ments on the new fe­deral go­vern­ment's tax po­licy plans for the 19th le­gis­la­tive pe­riod. In ad­di­tion to the ob­jec­tive of a ba­lan­ced bud­get wi­thout new debt and a re­duc­tion of the ge­ne­ral go­vern­ment debt ra­tio to be­low 60% of gross do­mestic pro­duct, the fol­lo­wing tax po­licy ob­jec­tives are pur­sued. The in­for­ma­tion in pa­ren­the­ses in­di­ca­tes where such state­ments can be found in the co­ali­tion agree­ment.

II. Business Taxation

1. Tax Be­ne­fits
Re­se­arch-ba­sed small and me­dium-si­zed en­ter­pri­ses in par­ti­cu­lar are to be­ne­fit from tax in­cen­ti­ves for re­se­arch (p. 13). Tax in­cen­ti­ves are to be ap­plied to per­son­nel and con­tract costs for re­se­arch and de­ve­lop­ment, and pro­ject fun­ding for small and me­dium-si­zed en­ter­pri­ses is to be con­ti­nued (p. 59).

For com­mer­ci­ally used elec­tric ve­hi­cles, a spe­cial write-off of 50% in the year of purchase, li­mited to five years, is to be in­tro­du­ced (p. 77).

Af­ter a con­sti­tu­tio­nal re­view, the re­clai­ming of re­si­den­tial land from far­mers is to be im­pro­ved by tax-ef­fec­tive op­por­tu­nities to in­vest in ren­tal hou­sing con­struc­tion (p. 109).

2. Start-ups
The ap­pli­ca­tion, ap­pro­val and ta­xa­tion pro­ce­du­res are to be sim­pli­fied for busi­ness start-ups. A "one-stop shop" is men­tio­ned as the de­si­red goal (p. 62).

The new go­vern­ment will ex­amine whe­ther to in­tro­duce tax in­cen­ti­ves to mo­bi­lize pri­vate ven­ture ca­pi­tal beyond the exis­ting mea­su­res (p. 62).

3. In­ter­na­tio­nal Tax Law
Ef­forts to fairly tax large cor­po­ra­ti­ons, par­ti­cu­larly In­ter­net com­pa­nies such as Google, Apple, Fa­ce­book and Ama­zon, are to be sup­por­ted (p. 7).

The in­tro­duc­tion of a com­mon, con­so­li­da­ted ba­sis of as­sess­ment and the es­ta­blish­ment of mi­ni­mum cor­po­rate tax ra­tes in the EU are to be sup­por­ted (pp. 8, 13, 69). To­ge­ther with France, Ger­many is to take un­spe­ci­fied in­itia­ti­ves to re­spond to in­ter­na­tio­nal chan­ges and chal­len­ges, es­pe­cially in the United Sta­tes (p. 69).

The role of the Fe­deral Cen­tral Tax Of­fice is to be strengt­he­ned. It is to be­come the cen­tral point of con­tact for non-re­si­dents on tax is­sues and bin­ding in­for­ma­tion (p. 69).

The aim is to create fair tax com­pe­ti­tion con­di­ti­ons for cross-bor­der busi­ness ac­tivi­ties by im­ple­men­ting the OECD BEPS gui­de­lines as broadly as pos­si­ble world­wide. To this end:

• the ob­li­ga­ti­ons un­der the EU Anti-Tax Avo­idance Di­rec­tive are to be trans­po­sed into Ger­man law, in the in­te­rest of Ger­many as a busi­ness lo­ca­tion,
• the CFC ru­les are to be mo­der­ni­zed,
• hy­brid re­gu­la­ti­ons are to be supp­le­men­ted and
• the in­te­rest de­duc­tion cap is to be ad­jus­ted (p. 69).

4. Ta­xa­tion of the Di­gi­tal Eco­nomy
Mea­su­res for ap­pro­priate ta­xa­tion of the di­gi­tal eco­nomy are to be ta­ken (p. 69).

Le­gal re­gu­la­ti­ons will be sought to com­bat VAT fraud when buy­ing and sel­ling goods on the In­ter­net. To this end, ope­ra­tors of elec­tro­nic mar­ket­places that do not pre­vent dis­ho­nest mer­chants from tra­ding via their mar­ket­place are to be char­ged for the un­paid sa­les tax. Ope­ra­tors are to be re­qui­red to pro­vide in­for­ma­tion about the mer­chants ac­tive on their plat­forms (p. 69).

5. Bu­reau­cracy Re­duc­tion
Bu­reau­cracy is to be re­du­ced in the tax field th­rough ti­mely tax au­dits and a re­view of tax th­res­holds (p. 63). In ad­di­tion, sta­tisti­cal ob­li­ga­ti­ons are to be re­du­ced, with re­lief from Eu­ro­pean re­por­ting ob­li­ga­ti­ons to be ap­plied to com­pa­nies with up to 500 em­ployees (p. 63).

The di­gi­ta­liza­tion of the ad­mi­nis­tra­tion is to be ex­pan­ded to create a cen­tral, uni­form di­gi­tal por­tal for ci­ti­zens and busi­nes­ses, so that data can be in­put one time and then used for a va­riety of ta­xes (p. 63).

6. Sa­les Tax and Du­ties
The new go­vern­ment co­ali­tion wants to pro­mote the ap­pli­ca­tion of the re­du­ced VAT rate at Eu­ro­pean le­vel for com­mer­ci­ally tra­ded works of art, e-books, e-pa­pers and other elec­tro­nic in­for­ma­tion me­dia (p. 171).

The col­lec­tion and re­fund pro­ce­dure for im­port sa­les tax is to be op­ti­mi­zed in or­der to eli­mi­nate com­pe­ti­tive di­sad­van­ta­ges for Ger­man in­dus­trial and tra­ding com­pa­nies, as well as air­ports and se­aports (p. 69).

All areas of the Cu­st­oms ad­mi­nis­tra­tion are to be strengt­he­ned, in­clu­ding the hand­ling of in­ter­na­tio­nal trade flows, par­ti­cu­larly by ad­ding per­son­nel (p. 69).

7. Real Es­tate Trans­fer Tax
Af­ter com­ple­tion of the au­dit work by the fe­deral and state go­vern­ments, an ef­fec­tive and le­gally bin­ding le­gal re­gu­la­tion is to be im­ple­men­ted in or­der to end abusive real es­tate trans­fer tax struc­tures by me­ans of share deals. The Ger­man sta­tes should be able to use the ad­di­tio­nal re­ve­nue ge­ne­ra­ted to re­duce tax ra­tes (p. 110).

III. Taxation of Employees

With re­gard to flat-rate com­pany car ta­xa­tion, it is plan­ned to in­tro­duce a re­du­ced rate of 0.5% of the do­mestic list price for e-ve­hi­cles (elec­tric and hy­brid ve­hi­cles) (p. 77). Un­der cur­rent re­gu­la­ti­ons, a be­ne­fit in kind amoun­ting to 1% of the gross new list price is ta­xable each month for pri­vate use of the com­pany car.

IV. Individual Taxation

1. Tax Re­lief for Ci­ti­zens
The tax bur­den on ci­ti­zens is not to be in­crea­sed (p. 12). In­stead, a re­port is to be sub­mit­ted every two years on bra­cket creep, and the in­come tax rate is to be ad­jus­ted ac­cor­din­gly (pp. 53, 68). In ad­di­tion, there are plans to con­sider an ad­just­ment of the flat-rate tax al­lo­wan­ces for peo­ple with disa­bi­li­ties (p. 53).

The so­li­da­rity surch­arge is to be pha­sed out. A clear first step in this di­rec­tion is to be ta­ken be­gin­ning in 2021, and lo­wer and middle in­co­mes are to be re­lie­ved by in­tro­du­cing an ex­emp­tion li­mit (with a sli­ding zone). This should com­ple­tely ex­empt around 90% of tax­pay­ers from the so­li­da­rity surch­arge (pp. 12, 53).

2. Real Es­tate
To pro­mote the crea­tion of hou­sing in the af­for­da­ble ren­tal seg­ment, tax in­cen­ti­ves are plan­ned for pri­va­tely fi­nan­ced new hou­sing con­struc­tion (p. 16). Spe­ci­fi­cally, a spe­cial write-off is to be in­tro­du­ced, li­mited un­til the end of 2021, which can be clai­med in ad­di­tion to strai­ght-line depre­cia­tion and amounts to 5% per year over four years (p. 110).

En­ergy-ef­fi­ci­ent buil­ding re­no­va­ti­ons are to be pro­mo­ted for tax pur­po­ses. To do so, tax­pay­ers are to be al­lo­wed to ap­ply for a sub­sidy or a re­duc­tion in ta­xable in­come (p. 114).

Fa­mi­lies are to be sup­por­ted in ac­qui­ring home ow­nership with a hou­sing-re­la­ted child be­ne­fit of 1,200 eu­ros per child per year (p. 16). This be­ne­fit is to be paid over a pe­riod of 10 years and is to be im­ple­men­ted across the board, up to an in­come li­mit of 75,000 eu­ros ta­xable hou­se­hold in­come per year, plus 15,000 eu­ros per child (p. 110).

The new go­vern­ment is to ex­plore the pos­si­bi­lity of gran­ting a tax-free al­lo­wance for land trans­fer tax on the first ac­qui­si­tion of re­si­den­tial pro­per­ties for fa­mi­lies (p. 110).

3. Invest­ment In­come
The flat-rate wi­th­hol­ding tax on in­te­rest in­come is to be ab­olis­hed. This is ju­sti­fied by the es­ta­blish­ment of an au­to­ma­tic in­for­ma­tion ex­change. Cir­cum­ven­tion is to be pre­ven­ted (p. 69).

The in­tro­duc­tion of a sub­stan­tial fi­nan­cial tran­sac­tion tax at EU le­vel is to be com­ple­ted (pp. 8, 69).

4. Fa­mi­lies
In or­der to achieve an equi­ta­ble dis­tri­bu­tion of the tax bur­den bet­ween spou­ses, spou­ses with tax class com­bi­na­tion III/V are to be re­gu­larly in­for­med in tax as­sess­ments about the fac­tor pro­ce­dure and the pos­si­bi­lity of a change (p. 68).

The child be­ne­fit is to be in­crea­sed by 25 eu­ros per month (p. 11). The child be­ne­fit is to in­crease by 10 eu­ros as of July 1, 2019, and by a fur­ther 15 eu­ros as of Ja­nu­ary 1, 2021. At the same time, the al­lo­wance for de­pen­dent child­ren is to be ad­jus­ted ac­cor­din­gly (p. 19).

5. Volun­tee­rism
Ci­vic en­ga­ge­ment and volun­tee­rism is to be pro­mo­ted th­rough tax re­lief for volun­teers (p. 118).

6. Tax Sim­pli­fi­ca­tion
The abi­lity of ci­ti­zens to com­mu­ni­cate with the tax aut­ho­ri­ties elec­tro­ni­cally is to be ex­pan­ded (p. 68). The aim is to in­tro­duce a pre-fil­led tax re­turn for all tax­pay­ers by the 2021 as­sess­ment pe­riod (p. 68).

V. Property Tax

Pro­perty tax is to be put on a fi­xed ba­sis and thus se­cu­red as an im­port­ant source of in­come for the mu­ni­ci­pa­li­ties (p. 16). Fol­lo­wing a con­sti­tu­tio­nal re­view, the le­gal ba­sis is to be crea­ted so that mu­ni­ci­pa­li­ties can im­prove the mo­bi­liza­tion of buil­ding land th­rough tax mea­su­res. Spe­ci­fi­cally, the in­tro­duc­tion of a "pro­perty tax C" is in­ten­ded to enable towns and mu­ni­ci­pa­li­ties to im­prove the avail­abi­lity of land for re­si­den­tial pur­po­ses (p. 109).

VI. Fair Taxation

Tax dum­ping, tax fraud and avo­idance, and mo­ney laun­de­ring are to be com­ba­ted both in­ter­na­tio­nally and in the EU (pp. 7, 69).

Fis­cal con­trols, eco­no­mic coor­di­na­tion in the EU and the euro zone and the fight against tax fraud and ag­gres­sive tax avo­idance are to be pro­mo­ted (p. 9, 13).

In or­der to pro­mote fair tax en­force­ment, as­sets ac­qui­red from a crime and all un­la­wful pro­fits are to be con­sis­tently con­fisca­ted (p. 69).