German parliament amends company taxation

May 25, 2007, 10:35 GMT

Berlin - Legislation bringing several cuts in German company tax was passed Friday by the Bundestag parliament in Bonn and is to take effect next year after passage through the upper house.

Finance Minister Peer Steinbrueck dismissed criticisms and described it as a 'champion' tax package for Chancellor Angela Merkel's left-right coalition.

The coalition, comprising the Christian Democrats and Social Democrats, mustered 391 votes to pass the legislation, with 149 against.

Social Democrat leftists had grumbled earlier that the cuts were an 'undeserved gift' of 30 billion euros (40 billion dollars) annually to business.

But Steinbrueck said that amending corporate taxation was an investment in Germany's future.

The minister said Germany was reducing taxation on corporate earnings from nearly 39 per cent to less than 30 per cent, in line with other industrialized nations. This would make the country more attractive to investors.

To make up for the cuts, Germany is abolishing tax holidays which have mainly benefited multinationals.

Parliament also adopted a flat, 25-per-cent rate of taxation on capital earnings.

The tax will be deducted at source by banks starting 2009 and means Germans will no longer need to declare interest, dividends and capital gains as income.