Growth Opportunities Act partly contained in another law

As the mediation process for the Growth Opportunities Act will drag on until 2024, the Bundestag and Bundesrat have incorporated undisputed parts of the law into the Secondary Credit Market Promotion Act that has now been passed.

The Growth Opportunities Act contains many tax breaks, especially for companies, with which the federal government wants to boost the economy. While the federal states agree with the aim, the changes brought about by the law are too expensive for them. With the accusation that money is being distributed according to the watering can principle, the Bundesrat referred the law to the Mediation Committee at its meeting on November 24, 2023. Contrary to initial expectations, however, the conciliation process will take longer.

However, because the draft of the Growth Opportunities Act also contained changes that were undisputed between the federal and state governments and had to be passed this year in order to avoid negative consequences for the state and taxpayers, the Bundestag and Bundesrat agreed to incorporate these changes into another law, which the parliaments passed in their last session week before Christmas. The Secondary Credit Market Promotion Act now contains the following points, which were originally part of the Growth Opportunities Act:

• MoPeG: The modernization of partnership law comes into force at the turn of the year. Tax law must be adapted to this reform in several areas, which is now being done. This also includes a change to real estate transfer tax, which maintains the previous tax exemption regulation for joint assets by treating the company assets of partnerships with legal capacity as joint assets for real estate transfer tax purposes from 2024. This regulation, which was originally only intended as a transitional regulation until the end of 2024, now applies until the end of 2026, which gives the legislator sufficient time for the planned reform of the real estate transfer tax, in which the tax exemption regulations should then also be fundamentally revised.

• December aid: In December 2022, the federal government assumed the costs for the gas and heating discount in order to relieve citizens of the high energy prices at the time. As social compensation, this aid was to be taxed, but this proved to be impractical. The December 2022 aid will therefore now be tax-free with retroactive effect.

• Interest barrier: Due to the requirements of the EU's Anti-Tax Avoidance Directive, the regulations on the interest barrier have been amended. The law also clarifies the term "net interest expenses" and makes it clear that an EBITDA carryforward does not arise in financial years in which interest expenses do not exceed interest income. In future, interest carried forward can only be deducted if there is sufficient offsettable EBITDA.

• Data exchange: The exchange of data between private health and long-term care insurance, the tax authorities and employers, which was originally scheduled to start on January 1, 2024, has been postponed by two years.

• Pension lump sum: When deducting income tax, reductions in long-term care insurance contributions for children are now taken into account accordingly in the flat-rate pension allowance, which will lead to additional annual tax revenue of around EUR 250 million for the state.

The Mediation Committee will probably not deal with the majority of the changes planned by the Growth Opportunities Act until 2024. There, the federal states want to weaken some of the more expensive changes or negotiate them out of the law. At the top of the states' list is the reintroduction of declining balance depreciation, which is too generous for the states in its currently planned form.

Although it is rather unlikely that the declining balance method of depreciation will be completely removed from the draft, it is conceivable that the maximum depreciation rates will be reduced. In addition, according to the draft version, the declining balance method of depreciation should already apply to acquisitions after September 30, 2023, which is now very unlikely because the amendment would have had to be adopted in 2023 in order to avoid constitutional problems. However, nothing stands in the way of declining balance depreciation from 2024 if the Federal Council approves this regulation in its amended form.