Tax policy: Union threatens to block tax reform again

Berlin. The Union is threatening the SPD with blocking the tax reform. The deputy chairman of the Union parliamentary group, Mathias Middelberg, explained to the Handelsblatt: “The income tax reform cannot be approved without a really workable model that enables partnerships to switch to taxation according to corporate tax.”

Small and medium-sized businesses in particular have to fear a major disadvantage. This should be prevented.

Background: As part of their reform program, the Union and SPD also agreed on a tax reform. This stipulates that the so-called rich tax of 45 percent should in future apply from an annual income of 250,000 euros. So far it has been almost 278,000 euros. At the same time, a new tax rate of 47 percent will be introduced, which will apply to annual incomes of over 280,000 euros.

Many companies are affected by this tax increase. There are a million partnerships in Germany, which, in contrast to corporations such as AGs or GmbHs, are mostly owner-managed. Your profits are attributed personally to the owners - many of them are small and medium-sized businesses. For them, income tax is essentially corporate tax. And that is exactly what could become an ever greater disadvantage in the coming years.

There will be a wide gap in taxation in the future

The black-red coalition had already decided at the beginning of the electoral period to reduce corporate tax for corporations from 15 to ten percent in five steps from 2028. While corporations such as AGs or GmbHs are looking forward to relief, partnerships with high profits will have to pay more in the future due to the income tax reform.

As a result of the two reforms, the taxation of companies would in future differ by seven percentage points, depending on the legal form. “Such a wide divergence in taxation depending on the legal form of the company is unacceptable,” says Middelberg.

There are already two instruments to mitigate unequal treatment. Profits that remain in the company and are invested can be favored. However, this preferential treatment is considered extremely bureaucratic and has been criticized by business for a long time.

Option model is hardly practical yet

The same applies to the second instrument, the so-called options model. With the option model, partnerships can apply to be treated like a corporation for tax purposes, i.e. to pay corporate tax instead of income tax. This option has been around since 2022, but is hardly used. In this case too, the procedure is considered extremely bureaucratic.

The Union and the SPD had therefore already agreed in the coalition paper to make the instruments more practical. This was then reaffirmed in the coalition paper when the reform program was decided at the beginning of July. The federal government will present an “improvement of the option model” “by autumn 2026,” the paper says. Middelberg, however, criticizes: “Unfortunately, there is still no proposal for this so far.”

For example, so-called special business assets - such as land or shares that belong personally to a partner but serve the business - must be transferred to the company. Many company owners consider the rule to be a serious disadvantage of the previous option model.

Although he had already asked the Federal Ministry of Finance several times in discussions to present a proposal for an easier change, nothing had happened, complained Middelberg. And is now increasing the pressure: “In my opinion, without a practical option model, there can be no approval for the planned tax increase.” Otherwise, the differences in the taxation of partnerships and corporations are too great.