German coalition agreement: Key tax developments

The coalition agreement presented by SPD, Bündnis 90/Die Grünen and FDP on 24 November 2021 also includes many tax initiatives. Digitalisation and de-bureaucratisation of tax authorities shall be expedited, tax evasion and tax avoidance shall be combated more intensely.

Please find below a summary of the key initiatives:

Company-related initiatives and employee taxation

• Increasing the attractiveness of employee participation schemes by, inter alia, raising the tax allowance.
• Creation of a new legal basis for enterprises with restricted assets in order to preclude tax saving arrangements.
• Investment premium for climate protection and digital assets through a “super depreciation” for assets acquired or manufactured in 2022 and 2023.
• Prolongation of the extended loss offsetting period until the end of 2023 and expansion of the loss carry forward period to the two immediately preceding assessment periods.
• Evaluation and assessment of the option model and the taxation of retained earnings.
• Continued development of the import VAT.
• Promotion of the implementation of the global minimum taxation.
• Expansion of withholding taxes by amendments to DTTs and supplementation of the interest ceiling with an interest rate ceiling.
• Prolongation and evaluation of the tax provision for employees working in the home office until 31 December 2022.
• Privileged treatment of hybrid vehicles within the framework of company car taxation (withdrawal value 0.5%) only in case of predominant (more than 50%) electronic driving.

Initiatives in the family and private sphere

• Increase of the education allowance from EUR 924 to EUR 1,200.
• Avoidance of a double taxation of pensions through full deduction of pension scheme contributions as special expenses as from 2023 and reduction of the rise of the taxable pension portion to 0.5%.
• Increase of the saver’s allowance as per 1 January 2023 to EUR 1,000 (respectively EUR 2,000 in case of joint assessment).
• Transfer of the combination of tax brackets III and IV into the factor method of tax bracket IV.
• Counter-financing of a more flexible design of the real estate transfer tax by closing tax loopholes in the context of share deals, thus facilitating the acquisition of owner-occupied housing.

Non-profit organisations

• Expansion of the scope of activities for non-profit organisations.
• Elimination of tax obstacles for donations in kind to non-profit organisations.

Enforcement, simplification and digitalisation of the taxation process

• Organisational and personnel reinforcement of, inter alia, the Federal Ministry of Finance, the customs, the Federal Central Tax Office, the Federal Financial Supervisory Authority and the Financial Intelligence Unit to enable stronger action against tax evasion, financial market crime and money laundering.
• Digitalisation of the taxation process with the aim of digitising the entire interaction between taxpayer and the tax authorities.
• Modernisation and acceleration of tax audits by means of improved interfaces, standardisation and the use of new technologies.
• Establishment of a tax research institute in order to enhance the fundament of evidence-based legislation.

Combatting tax evasion and tax planning arrangements

• Extension of the disclosure rules for cross-border tax arrangements to domestic tax arrangements of enterprises with an annual turnover of more than EUR 10m.
• Fighting VAT fraud by the implementation of an electronic reporting system for the preparation, verification and routing of invoices.
• Prevention of dividend arbitrage transactions (“cum/ex”) by use of new technical means (e.g., blockchain) and recovery of tax losses resulting from such transactions.
• Implementation of the OECD rules to counter harmful tax practices in the context of the international exchange of financial account information (CRS and FATCA).