German corporate tax reform: relief for firms, but doubts on international compatibility
On 02 Nov the German grand coalition government agreed on the draft law for corporate tax reform, one of its key reform projects. Key features are a cut in the rate of corporate tax from 25% to 15%, offset by an increase in taxable profits by curbing tax deductibility of interest payments and abandoning tax allowances for local business tax. This should reduce overall taxation of companies to 29.83% - from currently 38.7% - implying 5 bn annual savings for the business sector. Both the scale of the effect and the compatibility of the reform with international law have been contested, implying material changes before it becomes law in 2008.
Asset conclusions: in theory positive for German stocks with a German investor base, but potential savings for German international firms smaller than stated.
© Graham Bishop
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