Reinhard Panse's Perspectives
Reinhard Panse's Perspectives
Podcast
26.2.2021
Nevertheless, we need to talk about how share values will develop over the next few years and the dramatic role that corporate taxation will play in this.
These are crazy times, and not just because of the coronavirus pandemic. Of course it is important when the economy gets going again, but there are a whole range of other factors that will influence future share values. These include, for example, the question of whether politicians will once again raise corporate taxes. In the USA this is considered certain, in the UK too and in Germany there is a general election this year, so a lot is possible - unfortunately, it has to be said.
The ignorance of many German politicians about the crazy level of corporate taxation in their own country is shocking. Companies pay 15 percent corporation tax and a further 15 percent trade tax on every 100 euros of gross profit. When the remaining 70 euros are distributed to shareholders or partners, a further 18.50 euros in withholding tax (25 percent tax rate + solidarity contribution) is then due. This leaves 51.50 euros, the effective tax rate is over 48%.
Entrepreneurs and shareholders who are already shedding a tear should skip the next paragraph. Because if the distribution of €70 were instead taxed at the top tax rate, including the "wealth tax surcharge" of 48% or €34, after the abolition of the flat-rate withholding tax, the shareholder or entrepreneur would be left with €36; the tax rate would be 64%. If the wealth tax of, for example, one percent of the company value, which is popular in the left-wing political spectrum, is then added to this, an average company would pay around 75 percent of its earnings to the state. Germany would then only be able to compete with countries such as North Korea or Cuba. All other countries, however, would be more attractive for German entrepreneurs.
And what does this mean for share prices? If politicians are (once again) guided by ignorance when it comes to corporate taxation, the profits of stock corporations in Germany will suffer. Otherwise, German shares could well generate returns in the upper single-digit range - note the subjunctive mood.
Reinhard Panse's Perspectives
26.2.2021
Reinhard Panse
It is always difficult to make a precise statement about the future - and there have already been enough financial analysts who were way off the mark.
Nevertheless, we need to talk about how share values will develop over the next few years and the dramatic role that corporate taxation will play in this.
These are crazy times, and not just because of the coronavirus pandemic. Of course it is important when the economy gets going again, but there are a whole range of other factors that will influence future share values. These include, for example, the question of whether politicians will once again raise corporate taxes. In the USA this is considered certain, in the UK too and in Germany there is a general election this year, so a lot is possible - unfortunately, it has to be said.
The ignorance of many German politicians about the crazy level of corporate taxation in their own country is shocking. Companies pay 15 percent corporation tax and a further 15 percent trade tax on every 100 euros of gross profit. When the remaining 70 euros are distributed to shareholders or partners, a further 18.50 euros in withholding tax (25 percent tax rate + solidarity contribution) is then due. This leaves 51.50 euros, the effective tax rate is over 48%.
Entrepreneurs and shareholders who are already shedding a tear should skip the next paragraph. Because if the distribution of €70 were instead taxed at the top tax rate, including the "wealth tax surcharge" of 48% or €34, after the abolition of the flat-rate withholding tax, the shareholder or entrepreneur would be left with €36; the tax rate would be 64%. If the wealth tax of, for example, one percent of the company value, which is popular in the left-wing political spectrum, is then added to this, an average company would pay around 75 percent of its earnings to the state. Germany would then only be able to compete with countries such as North Korea or Cuba. All other countries, however, would be more attractive for German entrepreneurs.
And what does this mean for share prices? If politicians are (once again) guided by ignorance when it comes to corporate taxation, the profits of stock corporations in Germany will suffer. Otherwise, German shares could well generate returns in the upper single-digit range - note the subjunctive mood.
About the author
Reinhard Panse
Reinhard Panse is Chief Investment Officer and co-founder of FINVIA Family Office GmbH. Until February 2020, Reinhard Panse was a member of the Management Board and Chief Investment Officer for HQ Trust GmbH, which is owned by the Harald Quandt family. From 2004 until joining HQ Trust GmbH in 2011, Reinhard Panse was Chief Investment Officer of the UBS Sauerborn business unit created within UBS Deutschland AG. From 2001, Reinhard Panse was a member of the Management Board of Sauerborn Trust AG and its legal predecessors. He was responsible for the investment strategy and played a leading role in the holistic asset management and administration of large private assets. Reinhard Panse began his career by taking over capital market and client support activities at Feri GmbH in 1989, after having founded and managed his own wealth management as managing director.
