22.05.2024Ministry of Finance publishes first draft of proposal for Annual Tax Act 2024
Draft proposal includes technical updates and amendments without any tax reform proposals
The German Ministry of Finance on 17 May 2024 published a first draft of a proposal for the Annual Tax Act 2024. The draft proposal consists of 243 pages (including an explanatory statement) and incorporates a variety of technical updates and amendments based on EU law developments and EU jurisprudence, as well as decisions from the federal tax court and the federal constitutional court. In addition, the draft proposal includes certain streamlining measures and technical corrrections that are required as a result of previous tax law changes. The draft proposal does not include any comprehensive tax reform measures or changes in tax rates.
The draft proposal still must be approved by the government before entering the formal legislative process. The timeline for the further proceeding of the draft proposal is unclear at this stage; it is, however, the intention of the government to finalize the law before year end.
The most noteworthy measures included in the draft proposal are the following:
- As a result of recent jurisprudence of the federal constitutional court (see GTLN dated 01/18/24), the draft proposal includes a provision that would allow for a tax neutral transfer of assets between partnerships with identical partners holding the same interest percentages. The proposed amendment would be applicable to all open cases; however, upon application, a taxable transfer would be possible provided the asset transfer took place before 12 January 2024.
- For VAT purposes and pursuant to implementation of EU Directive 2020/285, the threshold for qualifying as a small entrepreneur would be increased from EUR 22,000 to EUR 25,000 for the preceding fiscal year, and from EUR 50,000 to EUR 100,000 for the current fiscal year.
- Several technical updates have been proposed for the Corporate Income Tax Act, Trade Tax Act, and Reorganization Tax Act, as well as other tax laws.
- Wage tax relief has been proposed for certain benefits in kind (e.g., monthly mobility allowance).
- For real estate transfer tax (RETT) purposes, the concept of a “deemed or fictitious real estate-owning entity” as introduced by the federal tax court in two decisions from December 2022 and confirmed by the tax authorities in a 16 October 2023 decree (see GTLN dated 01/11/24) would generally be abolished. Such concept provides significant additional complexity to the RETT rules and might result in triggering RETT twice for a single transaction. The elimination of this concept would become effective on the day after the publication of the Annual Tax Act 2024 in the federal gazette.
As mentioned above, the draft proposal is at a very early stage, and amendments in the legislative process are likely to occur. Interested parties may submit comments on the draft proposal until 24 May 2024.
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