No New Tax Increases in Germany Budget, But MNCs Prepare for Hikes

The International Tax Monitor delivers daily news and analysis from the world's financial and business centers, with a focus on tax and accounting developments affecting transnational enterprises.

By Michael Scaturro

Sept. 8 — German Finance Minister Wolfgang Schaeuble announced no new tax increases in his 2016 budget, presented to parliament Sept. 8, but rather, unveiled tax cuts for families and individuals, and pledged a balanced budget for the next four years.

Schaeuble said the government plans to provide 5 billion euros ($5.6 billion) of tax cuts for families and individuals, and confirmed that no existing taxes would rise. Instead, he said the budget would remain in surplus for a further year and remain balanced until 2019. He added that the government estimates spending 312 billion euros ($350 billion) over the coming year, including on the planned tax cuts, broadband investments, and to deal with the Syrian refugee crisis.

Schaeuble obliquely sniped at Germany's Eurozone neighbors, some of which are struggling with the costs associated with resettling surging numbers of migrants fleeing to Europe.

“We can deal with the immigration crisis with adequate resources because over the last few years, we have gotten our financial house in order and balanced the budget,” Schaeuble said in the speech.

Cost of Balanced Budget 

Although the finance minister did not announce any tax increases for businesses, tax practitioners remained skeptical over how Germany will maintain a balanced budget while government expenses increase amid the Syrian refugee crisis. They told Bloomberg BNA that they expect taxes to increase in the near future, particularly for multinationals operating in the country.

Carsten Heinz, tax advisor and partner at Noerr LLP in Berlin, told Bloomberg BNA in a telephone interview Sept. 8 that he expects the finance ministry to “bring in obstacles like interest deductions and interest barriers and other compliance issues to stop foreign companies from transferring profits out of Germany.”

He said that such barriers are likely to be introduced in the Foreign Tax Act (Aussensteuergesetz), especially targeting controlled foreign companies (CFCs). Heinz predicted that tax changes and potential tax increases could make it more difficult for multinational companies them to operate in Germany, leading some to move to other EU nations.

Although others said this move was plausible, they said it would gain a small amount extra revenue because the legislation does not cover many German companies.

Alexander Linn, director at Deloitte & Touche GmbH and a tax professor at Ludwig Maximilian University of Munich, explained in a phone interview with Bloomberg BNA Sept. 8 that any changes to Germany's foreign tax laws are likely to be implemented in line with the Organization for Economic Cooperation and Development's Base Erosion and Profits Shifting (BEPS) project. However, he added that “minor refinements” could be implemented in the near term.

Loss Carry Forward Regime

In addition to possible changes to foreign tax laws, Heinz expects the finance ministry to consider amendments to Germany's generous unlimited loss carry forward system. He also anticipates that local tax offices will increase their assessment rates and increase the trade tax (Gewerbesteuer), a special levy on companies “trading or deemed trading.”

The trade tax varies from 7 percent to 15 percent, depending on the local tax authority, Heinz said. “After the increases, many corporations could ultimately be looking at total tax rates of 30 percent,” he said.

Heinz said local tax authorizes and the German Finance Ministry are also looking at changing rules on the taxation of partnerships, which are not currently subject to the trade tax. This could mean new taxes for law firms, asset management partnerships, real estate companies, and other entities classified as “regulated professions” currently exempt from the taxing tax.

“With the refugee situation, local tax authorizes will need additional sources of revenue,” Heinz said. “They are okay for the next six months, but going forward they will need to find ways to finance the additional costs,” he noted.

Number of Tax Audits to Fall

The refugee crisis could also affect the number of tax audits carried out over coming months.

Schaeuble said tax inspectors would be temporarily reassigned to the country's national police force and the Federal Office for Migration and Refugees to help those agencies deal with the refugee crisis.

“The extra people who were hired to conduct checks on whether companies are paying the minimum wage will be re-assigned,” Schaeuble said, “As a result, there will be fewer checks.”

Following Schaeuble's budget presentation, the lower house of parliament began its debate on the proposed measures Sept. 8. Once approved, the budget bill will be sent to the upper house of parliament for approval.

To contact the reporter responsible for this story: Michael Scaturro in Berlin at

To contact the editor responsible for this story: Anjana Solanki at

The Finance Minister's 2016 budget speech appear, in German, at