Update: Current tax changes to the Growth Opportunities Act

After a long legislative process, the necessary approval for the Growth Opportunities Act was given in the Bundesrat last Friday (March 22, 2024). A “slimmed-down” version of the law originally proposed by the federal government was passed. Even if the reactions from consultants have been rather restrained and the law is not seen as anything more than a “light” promotion of growth, the law does contain some welcome changes.

First and foremost are the improved depreciation options. The declining balance method of depreciation for movable assets and the declining balance method of depreciation for buildings will bring forward the depreciation substrate in future and provide at least temporary relief for taxpayers due to the lower taxes that will be incurred. The declining balance depreciation of buildings is now 5% (in the government draft it was still 6%) and applies to buildings for which the construction (start of construction) or, in the case of acquisition, the obligatory legal transaction (notarization) took place after 30.09.2023 and before 01.10.2029. In the case of acquisition, a further prerequisite is that the acquisition takes place by the end of the year of completion.

Another positive aspect is that a notification requirement for domestic tax arrangements is not included in the Growth Opportunities Act after all. In addition, changes to the offsetting of losses are planned. For example, the Growth Opportunities Act now provides for a reduction in minimum taxation for the assessment periods 2024 to 2027 by allowing losses exceeding EUR 1 million to be offset against 70% (previously 60%) of the total amount of income exceeding EUR 1 million. However, the improved loss offsetting only applies to income tax and corporation tax, but not to trade tax.
 
However, the law also contains more stringent changes to the detriment of the taxpayer. For example, additional requirements are placed on cross-border financing relationships, which in particular require new documentation requirements on the part of the taxpayer (section 1 (3d) to (3e) AStG). The additions to the Foreign Tax Act are also to be seen as a reaction to the non-introduction of the anti-fragmentation rule envisaged in the original draft for the interest barrier.

It should be noted that in view of the gloomy economic expectations, the Growth Opportunities Act alone will not ensure sufficient growth. Rather, the legislator is called upon to create further tax relief and incentives through future amendments to tax law.