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Germany Delays Key Tax Talks

July 2011 - Tax & Private Client. Legal Developments by Hassans.

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Despite earlier plans to forge swiftly ahead with tax cut discussions before the legislature's summer recess, Germany's black-yellow coalition government has now announced its decision to delay negotiations until the autumn. Germany's opposition parties have described the latest announcement as a further defeat for the Free Democratic Party.

Initially expected to debate the issue of agreed tax cuts at a forthcoming cabinet meeting at the beginning of July, the ruling Christian Democratic Union (CDU) party and Free Democratic Party (FDP) now plan to present their plan, including vital details of the type, amount and timings of the tax cuts, after the summer recess. Indeed, parliamentary leader of the CDU, Peter Altmaier, confirmed recently that there will be no definitive decisions taken before the summer break.

Eager to dispel rumours to the contrary, the FDP's parliamentary leader Rainer Brderle stated that both parties are on the right track as regards the issue of tax cuts, adding that consensus within the coalition is growing. It is agreed, Brderle continued, that tax cuts will be introduced in Germany, designed to reduce the fiscal burden on small- and middle- income earners to enable them to benefit from the economic upturn.

Discussions on tax cuts have so far focussed on the need to alleviate the phenomenon of fiscal drift. Germany's Finance Minister Wolfgang Schuble has already stated that he is open to changes designed to address this pressing issue.

Adding to the mix of ideas, Paul Kirchhof, formerly a constitutional court judge and key adviser to Chancellor Angela Merkel, recently unveiled details of his tax proposals, which aim to radically simplify the existing tax system, and which have been met with approval by members of both ruling parties.

Kirchhof proposed introducing a single flat rate of income tax of 25%, with a tax free allowance of EUR10,000. Some members of the governing coalition however, have dismissed this proposal as unfair on lower-paid taxpayers.

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