A Cut in Corporate Tax Rates in Germany

By THE INTERNATIONAL HERALD TRIBUNE
Published: November 3, 2006

The German government agreed on a plan to cut its average corporate tax rate in a bid to encourage investment in the country, which has Europe’s largest economy. The step will take Germany from having the highest tax in Europe to one that is broadly in line with the other rich countries of Western Europe. After months of negotiations, the Christian Democrats and Social Democrats — which form the coalition governing Germany — decided to reduce the average rate from 38.7 percent to about 29 percent, beginning Jan. 1, 2008. The measure radically lowers Germany’s nominal rate of taxation — a crucial factor in international perceptions of the business environment — but will ease the overall tax burden by only about $6.4 billion. To offset the rate reduction, the plan foresees broadening the tax base by restricting deductions of interest payments, licensing fees and other costs.