France, Germany to Continue Negotiations on Tax Systems

February 16, 2012 Taxation in FranceTaxation in Germany

France and Germany Discuss Tax SystemsPARIS – Before France and Germany, the two closest tax allies in Europe, can converge their tax systems, the governments of the two countries must address several important tax differences.

Earlier this month the Ministries of Finance of Germany and France published a new report summarizing current proposals for the convergence of the two countries’ tax systems. According to the report, the countries still need to carry out a number of separate changes to their own tax system in order to ensure efficient joint operations in the future.

Before the tax systems unified, the corporate income tax rate in France will need to be lowered to bring it in line with the rate in Germany. The corporate tax rate would not need to be the exactly the same in both countries, but overall tax burdens faced by companies in Germany and France would need to be mutually competitive. France may also need to introduce new rules to allow businesses to amortize goodwill following the acquisition of another business. The report outlined the current options for aligning thin capitalization and tax loss utilization rules between Germany and France.
From the perspective of Germany, one of the biggest changes that needs to be carried out in the national tax system is imposing minimum ownership requirements which will allow dividends to be exempt from taxation.

The report also pointed out several of the issued raised earlier in intergovernmental discussions, such as taxation of groups of companies, creating a joint system of offsetting of business losses, clarification of the regulations on taxation of partnerships, and a proposal for deductions on the interest received from national financial institutions and banks.

According to the international tax experts, any steps towards harmonization of the two tax systems could lead to greater levels of cooperation between tax authorities in the countries, and could spur further tax cooperation between other countries in Europe. On a national level, the changes will provide France with an opportunity to reevaluate its tax system, and potentially instate sweeping overhauls, while in Germany the changes will be used to instate a number of previously identified improvements to the tax system.

Photo by Chesi – Fotos CC