Taxing Transparent Entities
Current German business tax law is based upon the principle that income derived from transparent entities (i.e. partnerships and sole proprietorships) should be attributed to and be taxed solely at the level of the individual owners (sole proprietorship) or partners (partnership) of the business for the purposes of income tax law whereas corporations are subject to a separate tax, namely corporation tax. What this means is that in the case of transparent entities profits are subject to tax immediately and entirely at the personal level whereas in the case of corporations –joint stock corporations in the first place – there are two processes to be kept apart: First, income earned by corporations is determined and taxed at company level; second, it is taxed again at the level of the shareholders on the dividends they receive. Any attempt to reform business tax law needs to start by reviewing whether these differences ought to be maintained and, if so, in what way, respectively.
KeywordsEquity Capital Legal Form Standard Return Limited Partnership Earning Component
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