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German government puts tax simplification on the agenda
At a glance
- •The federal government plans an income tax reform and broader tax simplification package before the summer recess.
- •The ministry will explore allowing partnerships to opt into corporation tax and will review favourable treatment for retained earnings (Thesaurierungsbegünstigung).
- •BDI calls for deep structural reforms: lower corporate taxes, less bureaucracy, faster digitalisation and modern group taxation.
- •Economist Volker Wieland warned Germany faces a structural crisis with stagnant growth and declining competitiveness since 2019.
- •A previously agreed corporate tax reduction (15% to 10%) is scheduled to begin in 2028; industry wants earlier action.
- •Political divisions persist: SPD has signalled openness to raising the top income tax rate, while Chancellor Merz opposes higher taxes now.
- •Simplification may involve typification and flat-rate rules, trading some individual-case fairness for lower complexity and administrative burden.
Government unveils plan for tax simplification before summer
The German federal government plans to present a package of income tax reforms and broader measures to simplify the tax code before the summer parliamentary recess, according to Tax State Secretary Rolf Bösinger. Announcing the initiative at the BDI (Federation of German Industries) Tax Forum in Berlin, Bösinger said the ministry will also examine ways to make it easier for partnerships (Personengesellschaften) to opt into corporation tax and intends to revise the favourable treatment of retained earnings (Thesaurierungsbegünstigung).
BDI general manager Tanja Gönner had urged deeper structural reforms to boost growth and investment, arguing that one-off measures such as a temporary energy tax cut would not be sufficient. The industry lobby wants sweeping reductions in bureaucracy, faster digitalisation of tax procedures and a comprehensive corporate tax overhaul to improve Germanys competitiveness.
Calls for deeper reform amid warnings on competitiveness
Economist Volker Wieland delivered a blunt assessment at the forum, warning that Germany faces a serious structural crisis. He argued the economy has stagnated since 2019, losing competitiveness and investment to neighbours such as the Netherlands, Denmark and Switzerland, which have seen stronger growth over the past 25 years. Wieland urged policymakers to halt the growth of public spending and to accelerate plans to lower the corporate tax burden; he also insisted the top rate of income tax must not be increased.
The political debate has become more visible since the coalition agreed in principle last year to reduce the statutory corporate tax in five steps from 15% to 10% as an investment incentive, with the reductions scheduled to begin only in 2028. The SPD, which has signalled support for a higher top income tax rate, reminded observers after a recent coalition meeting that nothing is off the table. Chancellor Friedrich Merz (CDU) countered by warning against raising tax burdens in the current environment.
Bösinger stressed that simplification will likely mean more typification and flat-rate approaches in parts of the tax code. The previous push for maximum individual-case fairness has, he said, made the system more complex; exceptions and special rules create administrative burdens for taxpayers. He backed further digitalisation of tax administration and committed to stopping the continued growth of bureaucracy while pushing for structural improvements in existing rules.
BDI proposals presented at the forum include measures to streamline tax compliance for medium-sized enterprises and partnerships, simplifications in municipal trade tax and the research tax credit, and a modernised group taxation regime to better accommodate the holding structures of German corporate groups. For the federal budget, Bösinger suggested the government will look to reduce subsidies and pursue broader deficit savings to create fiscal headroom for reform.
The debate at the Tax Forum underlined an uneasy balance: policymakers must weigh a fair distribution of tax burdens against the practical need to reduce complexity and remove barriers to investment. Industry and many economists argue that lower business taxes, fewer regulatory hurdles and faster digital processes are essential to revive investment and long-term growth. Whether the governments summer legislative package will meet those ambitions remains to be seen, but the announcement marks a clear shift toward tackling tax complexity as part of a broader competitiveness agenda.
