In its report, the “Simplified Corporate Tax” Commission emphasizes that a functioning tax and welfare state requires a functioning private sector. Thus, capping corporate taxation at a maximum of 25 percent is intended to provide significant relief for businesses. In addition, it recommends measures to reduce bureaucracy and compliance costs, as well as the elimination of tax regulations that distort decision-making. A comprehensive tax code should support businesses throughout their entire life cycle without penalizing them with additional tax burdens.

Corporate Tax Reform

A key concern of the Commission is to revitalize the current dualistic approach to corporate taxation. However, companies vary too greatly in terms of size, personal nature, risk profile, international presence, and capital market orientation to develop a uniform “one-size-fits-all” tax model. It therefore proposes to give companies the choice between the transparency and separation principles as an expanded option within the framework of a “check-the-box” procedure.

Similar to the existing option model under Section 1a of the Corporate Income Tax Act (KStG), limited liability companies (GmbHs), closed joint-stock companies (AGs), and limited partnerships with a joint-stock company (KGaAs) should be granted a reverse option and be able to treat a conversion as a fictitious transaction for tax purposes. In addition, the Commission proposes a comprehensive revision of the option model to simplify a change in legal form for tax purposes, which would essentially render the retained earnings tax benefit superfluous. Therefore, the various legal relationships between the company and its shareholders (wages, pensions, rent, interest) should also be regulated in a consistent manner and, as far as possible, uniformly across all legal forms.

The Commission also recommends a significant expansion of loss carryforward, which the BDI has been calling for for years. Furthermore, it advocates—as does the BDI—doing away with a formal profit transfer agreement and instead proposes application-based group taxation, which depends solely on reaching a qualified ownership threshold.

To reduce compliance costs, the Commission recommends aligning the commercial and tax balance sheets into a so-called “unified balance sheet,” which would particularly benefit small and medium-sized enterprises. To reduce complexity and eliminate differences in tax burdens based on legal form, it proposes aligning the trade tax base more closely with those of income tax and corporate income tax. This would require the elimination of the additions under Section 8 of the Trade Tax Act (GewStG) as well as a review of the deduction provisions under Section 9 of the Trade Tax Act (GewStG). Furthermore, trade tax should also be creditable against corporate income tax for corporations.

The Commission has also developed far-reaching proposals to remove tax barriers to restructuring, liquidations, reorganizations, and loss carryforwards—measures that are essential for a competitive and dynamic economy.

Further Modernization and Digitization of the Tax Assessment Process

Numerous proposals from the expert commissions aim to further modernize and digitize the tax assessment process. For example, the experts—like the BDI—advocate for the digital transmission of tax assessment notices and recommend implementing the digital issuance of trade tax assessment notices nationwide as quickly as possible.

Encouragingly, a fundamental reform of the tax and social security treatment of in-kind benefits is also part of the reform agenda. Given the complexity and limited potential for digitization of the existing regulations, the experts favor a flat-rate taxation approach, thereby aligning with the BDI’s position.

There are also numerous proposals for improvement in the area of tax audits. These include, among other things, the establishment of a cooperative, data-driven, and risk-based audit approach that incorporates internal tax control systems, which is also in line with key BDI positions.