Germany's cabinet on Wednesday adopted draft proposals to cut the country's basic rate of corporate tax and Finance Minister Hans Eichel signalled dividend taxes could go up to help pay for it. The draft legislation - a copy of which was obtained by Reuters on Tuesday - confirmed plans to cut corporate tax to 19 percent from 25 percent first announced by Chancellor Gerhard Schroeder in March. The legislation, which must be approved by the opposition-controlled upper house of parliament, made no mention of higher dividend taxes but Eichel indicated a hike could be on the cards after an opposition party revived the idea to fund a linked cut in inheritance tax.
"If the opposition is unhappy with specific elements of financing then there is a second option available which the Chancellor has already referred to: namely a higher taxation of dividends," Eichel said at a news conference.
"If the (opposition) wants some movement there then we are ready to talk," he said, making it clear he would not support increasing dividend taxes to fund the cut in inheritance tax.
Currently 50 percent of any dividend payout is liable for taxation at personal income tax rates.
The government draft legislation foresees paying for the cut in corporate tax by closing a number of loopholes.
These include tax breaks offered on special-purpose film, renewable energy and ship building investment funds and further limiting a company's ability to offset any given year's taxable profits with past losses.
The government is also proposing to ease the inheritance tax burden on family-owned firms and give companies three years to sell off unwanted property at reduced tax rates in order to free up capital for investment.
The future of the corporate tax cut remains uncertain. Germany's main conservative opposition has said previously the government's plans would pay for a shallower cut in the basic corporate tax rate to 22 percent.
Separately, Eichel on Wednesday repeated that the government had not yet taken a decision on launching a real estate investment trust (REIT) market in Germany because questions about their taxation still had to be resolved.
"As you know, there is a question as to whether new, big loopholes might be created and this issue has not yet been adequately resolved," Eichel said.
"Therefore I can only say that we are basically in favour of REITs but if the tax issues cannot be resolved then it won't happen," he added.
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