Thu Mar 15th, 2007 at 07:47:45 PM EST
It would appear this tax rate decrease is just about done.
FRANKFURT: The German government agreed Thursday on a plan to cut its average corporate tax rate in a bid to encourage investment in Europe's largest economy. The step will take Germany from having the highest levy in Europe to one that is broadly in line with the other rich countries of Western Europe.
After months of negotiations, the Christian Democrats and Social Democrats - which form the unwieldy coalition currently governing Germany - decided to reduce the average rate from 38.7 percent to about 29 percent beginning on Jan. 1, 2008.
Germany had been higher than most of Europe, and seems to think this puts them more in line, lower than some.
With an average corporate tax rate around 29 percent, Germany will be on about the same footing as Britain, which stood at 30 percent at the beginning of the year, according to the consultancy KPMG. France is now slightly higher, at 33 percent, while Italy at 37 percent.
The article stresses that Germany has had some pressure from their Eastern neighbors, as well as other countries in the EU and the rest of the world.
The chancellor then, Gerhard Schröder, a Social Democrat, pushed the idea in response to Germany's neighbors to the East, which embraced much lower rates.
Slovakia, for example, in 2003 adopted a 19 percent flat tax applying to sales, corporations and individuals.
Austria, whose economy is closely linked with its eastern neighbors, dropped its tax rate to 25 percent from 34 percent in 2004 - a sign that the mood was changing in richer parts of Europe. Now, the view that countries have no choice but to play the reduction game seems to have arrived in Germany.
"There is no disagreement between the coalition parties that we have to tax companies differently than in past decades," Roland Koch, the Christian Democrats' chief negotiator, said in announcing the agreement, Bloomberg News reported. "Today, we're exposed to international and European tax competition."
This puts much of Europe below US corporate tax rates of 35%, though to really compare one would have to look at the impact of graduated tax rates in the US and other countries, as well as available tax deductions.