On October 30, 2023, AmCham Germany, in cooperation with PricewaterhouseCoopers, hosted an Expert Briefing on “The Growth Opportunities Act.” Christof Letzgus, Partner, PwC Germany opened the Expert Briefing by highlighting the transformational environment for both the U.S. and the German/EU economies. Until Q1 of 2023, Germany had sustainable, but slowed growth. Several recent crises have hit the German economy particularly hard. The transformational challenges also require overcoming a backlog on digitization and infrastructure at times of greatly increased public indebtedness. However, there are indications that the transatlantic relationship, which had been cooling down in previous years, is warming up again. On the tax side, the Growth Opportunities Act, which proposes several measures to incentivize investment and help prevent companies from going out of business, is an attempt to meet the transformational challenges, which also includes elements which have sometimes been described as the German response to the American Inflation Reduction Act (IRA) implemented in 2022.
Tom Patten, U.S. Partner at PricewaterhouseCoopers, continued the briefing by reviewing the key aspects of the Inflation Reduction Act (IRA) and its possible implications under the new Pillar 2 rules on the so-called Global Minimum Taxation developed by the OECD, which are currently being finalized and rolled out within the EU and in many other countries. In the U.S., federal debt levels and interest payments are expected to continue rising. Increased deficits are likely to present challenges, and 2025 is expected to be a period of intense tax policy debate. The Inflation Reduction Act originally factored over $390 billion of new energy related tax credits over the next ten years.
Compared to this, the German Growth Opportunities Bill has a budgeted ca. €7 billion in aggregate tax relief on an annual basis for the years through 2028. The Expert Briefing highlighted the main goals of the Growth Opportunities Bill, which include improved liquidity for businesses of all sizes, simplification of the tax system in core areas mainly for SMEs through an increase of thresholds and flat amounts). The briefing highlighted business incentives, such as the extension of an R&D allowance, the introduction of a broad but complex climate protection investment premium (“climate premium”) and the main reliefs; e.g., the accelerated depreciation of qualified fixed assets. The speakers also addressed challenges such as proposed additional interest deduction limitations or even further tax reporting and documentation requirements.
In closing, Mr. Letzgus outlined the challenges associated with the new bill and other related changes, including the introduction of a domestic tax arrangement’s reporting obligation. The Expert Briefing closed with a discussion on the biggest opportunities and threats, which were perceived from a U.S. or from a German MNC perspective, and practical approaches to use the offered opportunities to invest and innovate, especially in energy efficiency improvements. At the same time, approaches to meet new challenges resulting from the GOB and from the equally pending Pillar Two implementation legislation were discussed, especially for U.S. MNCs with German or European subsidiaries who will have to administer those rules from 2024.