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).