Germany's government is working on a plan for a single corporate tax system and hopes for results by 2007, Finance Minister Hans Eichel was quoted as saying on Sunday in an advance copy of a newspaper interview. Eichel told Handelsblatt newspaper, in remarks due to be published on Monday, that the initiative was independent of efforts by Germany and other European Union countries to harmonise the way company profits are calculated in the 25-nation bloc.
"Independently from this, I am working on a form of taxing companies in a way that is neutral from their legal form. It's an enormously complex issue. If we achieve it by 2007, which I expect, it would be great," Eichel was quoted as saying.
Germany's big, publicly limited companies are currently liable to pay on paper 25 percent basic corporate tax plus local business taxes worth around an additional 13 percent.
This makes the country's nominal tax rate at around 38 percent the highest in Europe, according to a finance ministry report earlier this month, although experts say effective rates are substantially lower due to a narrow tax base.
However, small and medium-sized companies, which make up the bulk of the country's firms, take a different legal form and are taxed at personal income tax rates that range from 15 percent to 42 percent.
Der Spiegel magazine reported on Sunday that Eichel hoped EU finance ministers would agree to wide-ranging harmonisation of the taxation of company profits and that his ideas extend far beyond an existing European proposal for a common tax base.
Under his idea, a multinational company's profits in all EU countries would be added up and divided according to the level of a firms' activities in each country, allowing them to be taxed at national level.
The aim would be to stop firms using transfer pricing - selling products and services between subsidiaries - to lower their tax base.
In the Handelsblatt interview, Eichel confirmed that he feared the potential budgetary impact of a raft of pending European court rulings on tax matters, notably in a case involving British retailer Marks & Spencer.
He said he wanted the European Commission to hold talks with the European Court of Justice to guarantee that any unfavourable rulings would give governments time to adapt their tax systems and could not be applied retroactively.
"Such a deadline of perhaps two years at European level would make the consequences for national budgets manageable and increase pressure to come to a European solution within this time," Eichel was quoted as saying.
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