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).
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).
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).
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).