Germany: 188. New Phases of Ecological Tax Reform

Last Updated: 12 January 2000
KPMG Germany Webpage
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For disclaimer and copyright see end of this article.

1. Enactment of new ecological tax bill

The launch of ecological taxation in Germany was described in our article no. 168. On 16 December 1999, the government promulgated a new law (Act for the Continuation of Ecological Tax Reform – BStBl I 1999, 2432) containing further phases of ecological tax reform and revising certain aspects of the ecological tax laws as previously implemented. Please see our prior article for a description of the basic structure and goals of ecological tax reform.

The proceeds of ecological tax reform are used to reduce contributions to the statutory pension insurance system (social security). The contribution rate was reduced from 20.3 % to 19.5 % effective 1 April 1999 as a result of the original ecological tax measures. The rate for the year 2000 has been further reduced to 19.3 %. Pension insurance contributions are paid half each by employers and employees on earnings up to annually adjusted ceilings. The ceiling for 2000 is DM 103,000 (US-$ 54,000).

The new legislation makes changes in the tax on electric current (a new tax which took effect on 1 April 1999) and in the mineral oil tax. The changes take effect by and large on 1 January 2000.

2. Overview of energy tax rate changes

The following is a simplified overview of energy tax rate changes since enactment of the original ecological tax act in March 1999. Conversion to US-$ is at the rate of EURO 1.00 = US-$ 1.0284 (rate on 7 January 2000).

2.1 Tax on electric energy

Standard Rates

DM

EURO

US-$

Unit

1 Apr. 1999

20.00

10.23

10.52

per mwh

1 Jan. 2000

25.00

12.78

13.15

per mwh

1 Jan. 2001

30.00

15.34

15.77

per mwh

1 Jan. 2002

35.01

17.90

18.41

per mwh

1 Jan. 2003

40.09

20.50

21.08

per mwh

Reduced Rates for Producing Enterprises

DM

EURO

US-$

Unit

1 Apr. 1999

4.00

2.05

2.10

per mwh

1 Jan. 2000

5.00

2.56

2.63

per mwh

1 Jan. 2001

6.00

3.07

3.15

per mwh

1 Jan. 2002

7.04

3.60

3.70

per mwh

1 Jan. 2003

8.02

4.10

4.22

per mwh

Reduced Rates for Rail Transport etc.

DM

EURO

US-$

Unit

1 Apr. 1999

10.00

5.11

5.26

per mwh

1 Jan. 2000

12.50

6.39

6.57

per mwh

1 Jan. 2001

15.00

7.67

7.89

per mwh

1 Jan. 2002

17.60

9.00

9.26

per mwh

1 Jan. 2003

19.95

10.20

10.49

per mwh

2.2 Tax on mineral oils

The mineral oil tax applies at different rates and times to a multitude of types and grades of fuels. Rates for some fuels vary depending on the use to which they are put. The following information is therefore selective.

Petrol (gasoline), diesel fuel

The standard taxes on these fuels are increased by DM 0.06 (6 pfennig) per litre on the 1st of January of every year from 2000 to 2003 (phases 2 - 5). The April 1999 increase under phase 1 of ecological taxation was likewise DM 0.06 per litre. This corresponds to an increase of about US-$ 0.12 per gallon in each of the five phases or US-$ 0.60 per gallon in the period from 1 April 1999 to 1 January 2003. Higher rates (+DM 0.03 per litre) apply as of November 2001 and January 2003 to petrol and diesel fuels not meeting sulphur limits of 50 mg/kg and 10 mg/kg respectively.

Total taxes on lead-free petrol thus climb from DM 0.98 per litre (US-$ 1.95 per gallon) in October 1998, when the current government took office, to DM 1.28 per litre (US-$ 2.55 per gallon) in January 2003, an increase of almost 31 %.

Natural gas

The tax rates for natural gas if used for heating are unchanged. There are increases in the rate for natural gas if used as vehicle fuel or for generating electricity.

Natural gas: correction as to prior rate

In article no. 168, we reported that the mineral oil tax on natural gas used for heating had been increased by "DM 0.32 per kwh". The correct figure is "DM 0.0032 per kwh" or "DM 3.20 per mwh". We apologise for the inaccuracy.

Heating oil

The tax rates for light heating oil are unchanged. There are increases for medium weight heating oil.

Reduced tax rates

The reduced tax rates for the above fuels have been revised in proportion to the changes in the standard tax rates.

3. Other changes in the tax on electric energy

The following is a selective list of other changes made in this law:

• The Main Customs Offices (Hauptzollämter) may now require security for future tax owing if there are indications of possible collection problems (§ 8 (10)).

• The definition of "supplier" in § 2 no. 1 StromStG has been extended to include all persons supplying electricity to others (previously, only persons supplying electricity to final consumers). The change does not affect tax liability. Rather, it expands the number of persons subject to supervision by the Main Customs Offices (a regulatory measure). This change is effective on 16 December 1999, the date of promulgation of the law.

• The definition of "electricity generated using renewable sources of energy" (§ 2 no. 7 StromStG) has been relaxed somewhat. Electricity generated using waste dump gas, purification treatment plant gas, and bio-mass now qualifies regardless of the installed generator capacity. Furthermore, the capacity limit above which hydraulic energy no longer qualifies has been increased from 5 megawatts to 10 megawatts.

• A new tax exemption has been created for electricity generated in plants with a rated capacity up to 2 megawatts where the electricity is withdrawn from the electricity network in the vicinity of the power plant and supplied by the operator of the plant (§ 9 (1) no. 3). This change is effective when approved by the European Commission.

• The reduced rate for "producing commercial enterprises" applies only to consumption above certain thresholds. These are adjusted annually and range from 40 mwh in 2000 to 25 mwh in 2003. This change is effective when approved by the European Commission. The procedure for collecting the full tax up to the threshold has also been modified.

• Provisions in the March 1999 law provide for abatement or refund of tax paid by producing commercial enterprises so as to avoid major imbalance between the burden of the tax and the benefit derived by reduction in employer contributions to the social security system (see sec. 4.4 of article no. 168). These rules now differentiate between companies which started business prior to 1998, in 1998, or from 1999 on. Companies potentially eligible for a refund should be certain to perform the calculations necessary to determine whether they qualify.

4. Other changes in the mineral oil tax

The following is a selective list of other changes made to this law:

• Part of the tax paid on diesel and gaseous fuel used for local public transport is now refundable.

• There is a new 100 % refund for tax on mineral oil consumed in high-efficiency plants using gas turbines and steam turbines in sequence to achieve electrical efficiency of at least 57.5 % without thermal energy draw-off. The preference applies for a period of 10 years and is available only to facilities constructed after 31 December 1999.

• The requirements for a refund of tax to facilities generating both heat and power (Kraft-Wärme-Kopplung) have been relaxed. Previously, the refund was contingent on operation at 70 % of capacity on an annual average. Now, facilities may qualify on a month-to-month basis and receive a refund for months where operation is at 70 % capacity even if this figure is not reached for the year as a whole.

In the event of questions regarding the subjects dealt with in this article, please contact:

Walter Steinberger

KPMG Frankfurt am Main

Telephone: +49-(0)69-9587-2052

Telefax: +49-(0)69-9587-2057

E-mail: WalterSteinberger@kpmg.com

For further information, please send a fax or an e-mail stating your inquiry to KPMG Frankfurt, attn. Christian Looks: Fax (0)69-9587-2262, e-mail cLooks@kpmg.com. You may also send an e-mail to KPMG Germany by clicking the Contact Contributor button on this screen.

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. Distribution to third persons is prohibited without our express written consent in advance.

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