Under the tax reform, the United States has lowered its federal corporate tax rate to 21 percent. Combined with the taxes levied by the individual states, the total tax burden on companies in the United States now stands on average at around 26 percent. That means the overall tax burden is significantly lower in the United States than in Germany: with corporate taxes totalling around 30 percent, Germany today numbers among those countries that impose the highest tax burden.
In addition, the United States is introducing tax measures aimed at encouraging companies to shift foreign investments to the United States. Those measures include the possibility of immediately writing off investments and preferential tax rates for income earned abroad from intangible assets. They make new investments in the United States more attractive for companies around the world, including European ones.
Germany Must Keep Up with the Competition for Attracting Business
All this goes to show that Germany must face the tax competition. There are more than enough ways of doing so – for example, undertaking structural reforms such as the replacement of the trade tax, introducing tax breaks for research and lowering tax rates. Simply doing nothing would be disastrous for Germany as a business location.
Monika Wünnemann is head of the department for tax and financial policy at the BDI.