In its report, the “Simplified Corporate Tax” Commission emphasizes that a functioning tax and welfare state requires a functioning private sector. Limiting the overall tax burden on businesses to no more than 25 percent is intended to provide substantial relief. The Commission also recommends measures to reduce bureaucracy and compliance costs and to abolish tax rules that distort business decisions. A coherent tax system should support businesses throughout their entire life cycle without imposing additional tax burdens on them.

Corporate Tax Reform

A key concern of the Commission is to make the existing dual system of corporate taxation more flexible. However, businesses differ too greatly in terms of size, owner involvement, risk profile, international operations, and capital market orientation for a uniform one-size-fits-all tax model to be appropriate. The Commission therefore proposes giving businesses an extended option to choose between the transparency principle and the separation principle through a check-the-box procedure.

By analogy with the existing option model under Section 1a of the Corporate Income Tax Act (KStG), limited liability companies (GmbHs), privately held stock corporations (AGs), and partnerships limited by shares (KGaAs) should be granted a reverse option allowing them to be treated for tax purposes as though they had changed their legal form. The Commission also proposes a comprehensive revision of the option model to simplify changes in legal form for tax purposes. This would largely render the preferential tax treatment of retained earnings superfluous. The various legal relationships between a company and its shareholders, including salaries, pensions, rent, and interest, should therefore be regulated consistently and, as far as possible, uniformly across legal forms.

The Commission also recommends significantly expanding the rules on loss relief, a reform for which the BDI has advocated for many years. Like the BDI, it also calls for the abolition of the formal profit and loss transfer agreement and instead proposes an application-based group taxation regime that would depend solely on meeting a qualified ownership threshold.

To reduce compliance costs, the Commission recommends bringing commercial and tax balance sheets into alignment in the form of a "unified balance sheet", which would particularly benefit small and medium-sized enterprises. To reduce complexity and eliminate differences in the tax burden arising from legal form, it proposes aligning the trade tax base more closely with the income tax and corporate income tax bases. This would require abolishing the additions under Section 8 of the Trade Tax Act (GewStG) and reviewing the deductions under Section 9 GewStG. In addition, corporations should be permitted to credit trade tax against corporate income tax.

The Commission has also developed far-reaching proposals to remove tax barriers to restructurings, liquidations, reorganizations, and loss relief. These measures are essential to a competitive and dynamic economy.

Further Modernization and Digitization of the Tax Assessment Process

Numerous proposals by the expert commissions aim to further modernize and digitalize tax administration. Like the BDI, the experts advocate the electronic transmission of tax assessment notices and recommend introducing the electronic notification of trade tax assessment notices nationwide as quickly as possible.

A fundamental reform of the tax and social security treatment of benefits in kind is also, encouragingly, part of the reform agenda. Given the complexity of the existing rules and their limited suitability for digital processes, the experts favor a flat-rate taxation approach, thereby endorsing the BDI’s position.

The Commission also makes numerous proposals for improving tax audits. These include establishing a cooperative, data-driven, and risk-based audit approach that takes account of internal tax control systems, which is likewise consistent with key BDI positions.