Germany: Bundestag approves draft business tax reform bill

On 17 November 2023, the German lower house parliament (Bundestag) passed a bill that seeks to promote economic expansion, stimulate investment, and make the tax system more user-friendly and equitable. Some of the key provisions of the bill include:

  • An increase in the loss carryback period for individual and corporate income tax purposes from two years to three years, but with a reduction in the maximum amount of the carryback for corporate taxpayers from EUR 10 million to EUR 5 million.
  • The introduction of an arm’s length requirement for intercompany cross-border financing arrangements, which would require taxpayers to provide plausible evidence about the ability to service the debt and the financing need for the borrowing.
  • The abolition of the dual consolidated loss (DCL) rules for tax consolidated groups with effect as from 2024.
  • An extension of the transition period for the introduction of mandatory electronic invoicing for VAT purposes from one year to two years for business-to-business (B2B) transactions and from two years to three years for small companies.
  • The termination of the reduced VAT rate for gas and heat supplies as from 29 February 2024.
  • The extension of the application of the current exemption rules from real estate transfer tax (RETT) for certain transactions between a partnership and its partners through 31 December 2024.
  • The retention of the mandatory disclosure and reporting requirement for certain purely domestic tax planning arrangements.
  • A shortening of the investment period for the proposed climate investment grant from 2023 to 2024.
  • A relaxation of the minimum taxation rules limiting the offset of a net operating loss (NOL) carryforward against current year profits from 2024 to 2027.

The tax reform bill still has to be approved by the upper house of parliament, and a discussion and vote on the bill are scheduled for 24 November 2023.

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