On 9 November 2009, the German government announced a draft Act for the Acceleration of Economic Growth (Gesetz zur Beschleunigung des Wirtschaftswachstums or Wachstumsbeschleunigungsgesetz, hereinafter the “Economic Growth Act”.

This act is intended to implement some of the election pledges of the newly elected coalition government. The Economic Growth Act therefore contains several amendments to recent legislation intended to limit the negative consequences to the German economy resulting from the current economic crisis.

The most important aspects of the proposed act are:

• Amendment of the interest-stripping rules (Zinsschranke): The Citizen Relief Act of 22 July 2009 introduced an increased deductible interest cap of EUR 3 million per year (see our Blog entry as of 5 June 2009) but only on a temporary basis. The Economic Growth Act would extend this increased cap for an unlimited period. Furthermore, the Economic Growth Act would allow interest to be charged against 30% of EBITDA (earnings before interest, taxes, depreciation and amortization); while excess amounts could be carried forward for a period of 5 years.

• Immediate depreciation of low-value assets (up to EUR 410): Alternatively, assets within the value range of EUR 150 to EUR 1,000 could be pooled as a compound item which would then be subject to a 5-year uniform depreciation. A similar regulation was abolished in 2008 by the German Business Tax Reform (Unternehmensteuerreform).

• Loss carry forwards of companies acquired in share-purchase arrangements (Mantelkauf): Restrictions on the use of these loss carry forwards would be eased with the result that that losses of the acquired company could be carried forward in an amount equal to the acquired company’s unrealized gains. Such losses could also be carried forward to the extent that the transfer of shares is realized within an affiliated group and the same legal entity holds 100% of the shares of both the transferor and the transferee, directly or indirectly.

• Gift and inheritance taxes: The Economic Growth Act would ease restrictions on the transfer of businesses by reducing the time period required for continuation of the business from 7 to 5 years. The holding requirement regarding employees would also be eased in that, in the 5 years following the transfer, the company would need to pay an average of 80 % of the total annual wages paid prior to the transfer (rather than the previous requirement of approx. 93 %). In order to be granted total tax exemption, the business would need to be continued for 7 years (instead of 10 years as currently required), whereas the requirement to meet an average total annual wage of 100 % of the wages before transfer remains unchanged.

The Bundestag´s decision on the draft Act is expected for the late November/ early December and the Bundesrat´s decision is scheduled for 18.December 2009.
The Act on the Acceleration of Economic Growth is supposed to come into effect on 01 January 2010.