In 2011 the government and the tax authorities have address several hot topics, in particular the new draft circular on the Transformation Tax Act of the Federal Ministry of Finance (the “circular”) and the planned reforms of trade taxation as well as group taxation. There is much to do in addition to that: The Federal Association of German Industry (Bundesverband der Deutschen Industrie) has presented a 50-page list of “defects of the German tax laws”.
Planned circular on the Transformation Tax Act
With marked attention the tax practice awaits the publication of the new circular. Due to the profound changes of the German Reorganization Tax Act (Umwandlungssteuergesetz — RTA) as of December 2006 the new circular is desperately awaited. The authorities have trouble dealing with this topic. The current practice of the tax authorities not to issue binding rulings on important parts of the new law prior to the publication of the circular is reflecting the legal uncertainty in the tax practice. This is astonishing: Four years after the new law coming into effect it is difficult to define the political intentions of the tax authorities as manifested in the draft law at that time. Particular subjects have already been disclosed: The regulation of exit taxation in connection with transnational transformations is of prime importance. Intensely discussed is also the question who has to file the application on book value roll-over within the scope of Sections 3, 11, 20, 24 RTA as well as until when and with which tax office such application needs to be filed. The same is true as to the question at which point in time certain requirements need to be fulfilled in order to be eligible for a retroactive tax effect. In this regard the authorities apparently want to deviate from the current circular, although the law has not been changed insofar. Hence, an interim regulation becomes necessary.
The draft circular will soon be prosecuted for political discussion. We will report.
Reform of Municipal Financing
As stipulated in the coalition agreement of the German government, meanwhile a commission was established in order to develop proposals for the reform of the municipal financing. Potential starting points for a reform are a revenue-neutral replacement of the trade tax by a higher share in the VAT, a municipal income and corporation tax surcharge with an own rate of assessment as well as a participation of the municipalities in the wage tax revenue.
Modern Group Taxation
Likewise a topic on the agenda as per coalition agreement is the introduction of a modern group taxation system replacing the current fiscal unity. The tax neutrality of the organization of groups of companies should be the guiding principle of taxation. Accordingly, the working group of the tax authorities will have to deal with the reform of loss utilization at the same time. The external pressure will enhance by the time the German Federal Fiscal Court will give its opinion to the utilization of losses incurred by subsidiary companies resident in the EU. In light of the international developments and as group company taxation is an important tax location factor, Germany should take action soon.