Future tax burden: Few bright spots for Germany as a business location

The outcome of the federal election has what it takes to change Germany's locational conditions.

The planned adjustments to the tax rates at the company and shareholder level have a significant impact on the effective average tax burden.

This is the result of the ZEW Leibniz Center for European Economic Research in Mannheim, which examined the tax policy demands of the parties currently represented in the Bundestag on behalf of the Family Business Foundation.

The economists looked at how the effective average load of a model company would change.

Manfred Schäfers

Business correspondent in Berlin.

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The core statements of Verena Dutt, Friedrich Heinemann, Christoph Spengel and Barbara Stage are: "The tax burden in Germany is high in an international comparison and will continue to be relatively high to very high." In terms of tax attractiveness, Germany ranks fourth from last the 27 EU Member States, the United Kingdom, Switzerland, the United States, Canada and Japan.

"Reconnecting with leading industrial countries"

With the proposals of the Union and FDP one would move into the middle field - but the tax burden would still be above average.

With the Greens and the AfD, the "bad" status quo would remain.

Positioning would deteriorate with the SPD.

With the Left Program, Germany landed in last place by a large margin.

“Politics should make Germany more competitive. This leads to more jobs, investments and growth ”, warned Professor Rainer Kirchdörfer, board member of the Family Business Foundation. You can't get out of the crisis with tax increases. The best recipe against higher national debt is a growth-friendly financial and tax policy. "Our country has to catch up with leading industrial countries again," demanded Kirchdörfer.

Relief could come from an unfamiliar source. The new administration in Washington under Joe Biden wants to increase the corporate tax rate from 21 to 28 percent and to increase the income tax for high earners. The United Kingdom is also planning a higher corporation tax, with the rate expected to rise from 19 to 25 percent. "These measures would lead to an increase in the effective average tax burden in both countries and also influence Germany's attractiveness as a location," the brief report says.

With the exception of the left-wing proposal, this could lead to a slight improvement in Germany's position compared to the USA. However, it is not clear whether President Biden, with his narrow majority in Congress, will succeed in getting his plans through Congress without compromising. Among the CDU / CSU and FDP, the ranking would also be better than that of the United Kingdom.

While the reduction of the total tax burden at company level to 25 percent planned by the Union and FDP would, as expected, noticeably reduce the effective burden, the 10 percentage point increase in the corporate tax rate demanded by the party Die Linke would have the opposite effect. “By contrast, the complete abolition of the solidarity surcharge has only a minor effect on the effective tax burden at company level,” the authors write.

Corrections to the trade tax considered by the FDP and the Left would not only change the burdens slightly (with different signs), but would also have consequences for the attractiveness of the various forms of financing (debt or equity). If the shareholders are included in the investigation, the abolition of the final withholding tax planned by the Greens and the Left has further effects. Because the Greens, in return, want to only partially tax dividends, as in the past, the result would be “comparatively moderate” according to the study;

It is difficult to understand the statements made in the study on the various plans in terms of wealth tax or property levy. On the one hand, it is said: “A wealth tax can lead to a considerably higher absolute burden on investments.” In addition, there is the risk of interference with the substance of the assets. On the other hand, one also finds the statement: On the basis of the extent of the effective average tax burden considered here, only the proposal of the SPD would lead to an increase, since only this (in one variant) provides for a tax liability for legal persons. When asked, it was explained: An investor from the Gulf region would not be affected by the German wealth tax in most plans if he invested in a German corporation.And if the wealth tax is only levied on the shareholders, as is being considered by the Left and the Greens, this has no influence on the attractiveness of an investment in the company relative to an investment in the capital market.

Even if the wealth tax should not distort the decision between an investment in a machine and a system on the capital market, it is a burden on the calculation.

This is how the authors calculate: With a market interest rate of 5 percent and a wealth tax of 1 percent, the effective tax burden is 46.38 percent.

With a market interest rate of 1 percent and a wealth tax of 1 percent, the effective tax burden would even be 126.38 percent.

“This means that the income from the investment is completely taxed away and an additional 26.38 percent of the income from the assets has to be paid.” After 30 years, 0.92 cents of an invested euro remained.