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The German 1997 Annual Tax Act

The German 1997 Annual Tax Act (Jahressteuergesetz 1997) was enacted into law in December of 1996 and has since entered into force. Most, but not all, of its provisions take effect on 1 January 1997. Please note that this article is one of a 14-part set of articles describing the 1997 Annual Tax Act.



The much-discussed repeal of the trade tax on capital is not part of the 1997 Annual Tax Act. Parliament passed a measure on 28 February 1997 which would repeal the trade tax on capital effective 1 January 1998. The measure requires the approval of the Federal Council (Bundesrat) to become law. It is currently uncertain whether or on what terms the approval of this body, in which the Opposition commands a majority, can be secured. The trade tax on capital thus remains in effect in 1997.

The 1997 Annual Tax Act likewise does not extend the exemption from the trade tax on capital in the new German states. The apparent reason for this is the inability to secure the EU approval needed for an extension since the exemption constitutes a subsidy under EU law. The present state of the law is therefore that trade tax on capital will be collected in 1997 in the new German states.


For shipping companies engaged exclusively in the operation of commercial shipping in international traffic, 80 % of earnings for trade tax purposes are now deemed attributable to a permanent establishment located outside of Germany and hence exempt from trade tax.

For shipping companies partially engaged in the operation of commercial shipping in international traffic, 80 % of the earnings attributable to such operations benefit from the same legal fiction, provided these earnings are separately determined.

This article is one of a 14-part set of articles entitled "The German 1997 Annual Tax Act" in which we have endeavoured to provide a useful overview of what we consider to be the major changes made in the German laws by the 1997 Annual Tax Act and, more selectively, by other recent legislation. To access the other articles in the set please enter 'The German 1997 Annual Tax Act', 'KPMG Tax Advisers' and 'Business Monitor'. We are of course at your disposal to discuss in depth the ramifications of new provisions which are of particular interest to you.

Disclaimer and Copyright
This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. We in particular insist that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Please note the date of each article and that subsequent related developments are not necessarily reported on in later articles. Any claims nevertheless raised on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.