The Cornerstones of German Tax Reform 2008

November 7, 2006

On November 7, 2006, the Frankfurt office authored an alert memorandum entitled, “The Cornerstones of German Tax Reform 2008.” The four-page memo discusses the cornerstones for a tax reform in Germany in 2008 and 2009 that have been agreed upon by a working group of the German grand coalition. In essence, the plan is to reduce tax rates significantly but to limit the revenue loss through a broadening of the tax base. One of the key elements is the introduction of an “interest barrier” according to which net interest expense will no longer be deductible if it exceeds a certain percentage of EBIT. It is also planned that income from capital investments of private individuals will be subject to a final flat tax of 25%. The cornerstones only represent a political agreement of the grand coalition and will likely be subject to change. No detailed provisions have been released and the formal legislative process has not yet started.