Germany: 246. New Tax Legislation: Overview

Thomas Sauter, KPMG Frankfurt

The following tax bills were enacted into law in the latter half of 2001:

• Act for the Curtailment of Illegal Employment in the Construction Industry (Gesetz zur Eindämmung illegaler Betätigung im Baugewerbe) of 30 August 2001 (BGBl I 2001, 2267) – Illegal Construction Work Curtailment Act
• Act Combating Value Added Tax Fraud and Amending Other Tax Laws (Gesetz zur Bekämpfung von Steuerverkürzungen bei der Umsatzsteuer und zur Änderung anderer Steuergesetze) of 19 December 2001 (BGBl I 2001, 3922) – VAT Anti-Fraud Act
• Act Amending Tax Provisions (Gesetz zur Änderung steuerlicher Vorschriften) of 20 December 2001(BGBl I 2001, 3794) – 2001 Tax Amendment Act
• Act for the Further Development of Business Tax Law (Gesetz zur Fortentwicklung des Unternehmenssteuerrechts) of 20 December 2001 (BGBl I 2001, 3858) – Business Tax Development Act

The Illegal Construction Work Curtailment Act creates a new 15 % withholding tax on payments for construction work made on or after 1 January 2002. Details are found in KPMG German News no. 1/2002 p. 25 = article no. 247.

The VAT Anti-Fraud Act defines a new crime of organised tax evasion punishable by imprisonment from one to ten years (new § 370a AO) and amends § 261 (1) sent. 3 of the Penal Code to punish concealment of illicit tax refunds from organised tax evasion by imprisonment from six months to five years.

Another noteworthy provision in this act disqualifies life insurance companies and health insurance companies from membership in tax consolidated groups for corporation tax purposes (new § 14 (3) KStG, effective as of the 2002 assessment period – § 34 (6) no. 3 KStG). It should be noted, however, that the Federal Council (Bundesrat) coupled its ratification of the 2001 Business Tax Development Act with a resolution calling upon the legislature to repeal this measure with retroactive effect. Such resolutions sometimes reflect informal agreements between the government and certain States in return for their votes on a specific bill (the Business Tax Development Act). Agreements of this sort are invariably honoured.

Finally, the VAT Anti-Fraud Act makes significant changes in VAT law. These are described in an article on new VAT legislation in KPMG German News no. 1/2002 p. 43 = article no. 250.

The 2001 Tax Amendment Act also makes significant changes in VAT law. These changes are also discussed in the article on new VAT legislation in KPMG German News no. 1/2002 p. 43 = article no. 250. Income tax aspects of the 2001 Tax Amendment Act are discussed in an article in KPMG German News no. 1/2002 p. 39 = article no. 249. The changes made by this act primarily affect individuals, but have impact on businesses or international investors in some cases.

The most important piece of legislation from the perspective of domestic and foreign business entities is the Business Tax Development Act, which is reviewed in detail in an article in KPMG German News no. 1/2002 p. 31 = article no. 248.

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