It is a gift that at least some of the recipients are not yet sure whether they should actually accept: CDU leader Friedrich Merz wants to fundamentally reform the taxation of companies and eliminate the current two-track system of corporate tax and income tax. “This means: All companies, regardless of their legal form, will only be taxed according to a uniform corporate tax law, and partnerships will no longer be taxed according to income tax,” said Merz Handelsblatt. He envisages a uniform tax rate of around 25 percent. The only question is: who benefits and who is harmed by such a reform?
In Germany there are around 790,000 corporations, a good 411,000 partnerships and more than two million sole proprietorships. The former include GmbHs and stock corporations, which are subject to strict reporting requirements and pay 15 percent corporation tax on their profits. Added to this is the municipal trade tax, so that the total tax burden is on average just under 30 percent. Partnerships and sole proprietorships, on the other hand, have to meet less strict requirements, but the partners are liable for losses with their private assets. They do not pay corporation tax, but – like workers, employees and civil servants – income tax. The initial tax rate is 14, the rate for the last euro earned is up to 45 percent.
Whether the individual private company would benefit from Merz’s proposal depends on the average tax rate it pays. For many profitable companies, this average burden is likely to be well over 25 percent, plus trade tax. Merz’s plans would bring with them a noticeable tax cut. On the other hand, some small or unprofitable companies that are exempt from trade tax may even be faced with an additional burden. The state was also initially among the losers, because the reform would lead to tax losses of 20 to 30 billion euros per year, as the CDU leader himself admits. However, according to Merz, experience shows that corporate tax cuts stimulate economic growth and are therefore partly self-financing. An argument that is not without controversy in science.
The debate about the two-part corporate tax is 100 years old
Nevertheless, those affected also rely on this effect. “The last corporate tax reform in 2008 proved that tax rate reductions develop new growth dynamics,” said Rainer Kirchdörfer, board member of the Family Business and Politics Foundation, to the SZ. It is also correct that the CDU wants to achieve equal treatment of the profits of partnerships and corporations. “This is overdue. Tax stimulus is urgently needed to counteract the deterioration in many location factors,” said Kirchdörfer. Conclusion: “The family businesses welcome the CDU plans for a comprehensive corporate tax reform.”
In fact, the debate about whether – and if so, how – the coexistence of corporate and income tax in corporate taxation should be eliminated has been going on for almost exactly 100 years. In 1924, for example, participants at the German Lawyers’ Conference in Heidelberg formulated a corresponding demand. After all: For several years now, private companies have been able to choose whether they want to pay corporation tax instead of income. However, the option involves a few precautions and is also complicated, which is why only a few companies use it. Merz therefore wants to abolish the right to vote again and merge trade, corporate and income tax for entrepreneurial and commercial income into “an understandable corporate taxation”.
Family business association initially wants to abolish the solidarity surcharge
The CDU/CSU parliamentary group leader also received praise for this from Marie-Christine Ostermann, President of the Association of Family Businesses. “Merz addresses the concerns of many family business owners that Germany’s competitiveness is slipping away in far too many fields at the same time,” she said. “The goal of his corporate tax reform to reduce the tax burden is overdue. Germany has one of the highest corporate taxes among industrialized countries.”
However, the head of the association is not the only one to complain that “too little is known about exactly how the CDU imagines the concept”. In addition, Merz needs to clarify more clearly why corporations and partnerships should no longer be taxed differently. After all, private companies are the basis for the very long-term oriented financing culture in Germany. A corporate tax reform should also not lead to the elimination of the debt brake in the Basic Law. “It could therefore make sense to start with several intermediate steps, such as abolishing the solo payment, which is now almost only paid by companies.” Trade tax could also be replaced by a surcharge on income and corporation tax. According to Ostermann, that would be “a real reduction in bureaucracy”.