058d. The German 1997 Annual Tax Act (Item 04 of 14) - Trade Tax

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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.

IV. TRADE TAX

4.1 TRADE TAX ON CAPITAL

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.

4.2 TRADE TAX ON EARNINGS

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.

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