Passed through in tax competition

Joe Biden wants to put more of a strain on America’s companies. Other countries are receiving planned relief. What does that mean for Germany?

Finance Minister Olaf Scholz: His party rejects further exoneration.

FJanuary 5th is of considerable importance for international tax competition. Then the by-election in Georgia will decide whether America’s future President Joe Biden can “rule through” and enforce the announced tougher corporate taxation. Separately, two other important countries, Great Britain and the Netherlands, have canceled planned relief. Will the tough tax competition that has been observed for decades come to a standstill? Doesn’t Germany have to follow suit with lower corporate taxes, as many are demanding of the federal government?

An overview by the consulting company EY shows that Germany continues to occupy an inglorious and, from the point of view of economists, questionable place in the top group. Corporate income tax and trade tax add up to an average of 31 percent in this country. The value is slightly higher than in the official statistics because the EY experts have assumed a rate of assessment of 434 percent – which corresponds to the situation in the municipalities where most corporations are to be found. The Federal Ministry of Finance also takes into account small municipalities with very low assessment rates and thus comes to a total burden of just under 30 percent.

EY’s tax advisors have compiled the current charges for the FAZ from the various countries. If France makes its announcement and cuts the tax burden for its companies from 31 to 25 percent, only Brazil will rank above Germany. Why is it important? “The tax burden was, is and will remain an important factor for the attractiveness of the location”, explains the head of the tax practice of EY Germany, Henrik Ahlers. “Germany will have to continue to think about a sustainable tax policy, and the tax rate is an important, but not the exclusive, criterion. The pressure to act remains high, ”he warns.

Hope for the OECD

The Union wants to act quickly. “The taxation of our companies, which is high by international standards, is a competitive location factor”, parliamentary deputy Andreas Jung complains to the FAZ. “We have to act in order to strengthen jobs and added value in Germany.” . The SPD rejects any further relief; in the medium term it is even thinking of tightening it, such as reviving the wealth tax. At the same time, she hopes that the situation will ease through the negotiations that are taking place under the umbrella of the industrialized countries organization OECD. “International tax competition only works in the long term if it is fair,” emphasizes the financial policy spokesman for the SPD parliamentary group, Lothar Binding. “I therefore hope that the OECD will soon present proposals for taxing the digital economy and introducing an international minimum taxation.”