Tax Reform Compromise Enacted

The tax reform compromise reached by the parliamentary Reconciliation Committee was passed by both chambers of parliament on December 19. The four bills will therefore take effect on January 1, 2004

The four bills of the tax reform compromise reached by the parliamentary Reconciliation Committee on December 14 were passed by Bundestag and Bundesrat on December 19. Their formal enactment with the signature of the federal president and promulgation are expected well in time for entry into force as of January 1, 2004. They are:

Left-overs from the 2003 Tax Concessions Pruning Act ("Basket II")

Thin capital rules on related-party finance

? The rules will apply to all companies, regardless of ownership or residency

? Partnerships also fall into the net if at least one of the partners is a corporation holding more than 25%

? Companies with a total annual related-party interest expense of no more than ? 250,000 will be exempt

? There will be a common safe haven debt/equity ratio of 1.5:1. The current (2003) 3:1 ratio privileging holding companies will be dropped

? All related party interest...