German Finance Minister Hans Eichel sought to reassure his countrymen and women on Tuesday that the austerity deal worked out between the Social Democrats and the Greens will provide a solid basis for future growth. However, the core component of the plan, the decision to increase taxes, has not been well received by the German and international business community, which fears the new changes will discourage investment.

One of the main points of criticism is the introduction of a minimum tax for large corporations, which would require a company to pay taxes on at least half of its profits. Only the second half could be offset by losses from previous years. But industry lobbyists say companies recording losses should not have to pay taxes, because it reduces their profit margin and room for investment. In the long-run, such a tax would hinder corporations’ growth.

Dieter Hundt, president of the German Employer’s Association, told the “Financial Times Deutschland” that the “increase in taxes would hinder overall economic growth.” Ludwig Georg Braun, President of the German Association of Industry, Trade and Commerce, told DW-TV that the current situation is one of “unease, if not outright fear in the business sector, because there was no hint that this was going to take place.”

Criticism from international community

The American Chamber of Commerce in Germany has also criticized the coalition’s tax plans, saying they would discourage foreign investment and hamper overall economic growth. “The tax increases present a barrier to investment, which will have negative consequences for the entire economy,” Rainer Mück, Chair of the Chamber’s Tax Committee, told the “Financial Times Deutschland.”

Especially harmful for long-term growth are the plans for limiting the amount of losses a company can deduct from annual profits prior to taxation. “Here, profits will be taxed before they’ve even been made,” Mück said, referring to the new minimum tax requirement. As a result foreign investors, who operate on a slim profit margin, will look to other locations outside of Germany for setting up businesses.

Hardly any other EU member state has a minimum tax on corporations, making it extremely difficult for Germany to remain competitive. “In the context of the current unemployment situation, the question must be raised, whether Germany can afford to institute such measures” that ultimately send foreign employers else where, Mück said.

Currently, the American Chamber of Commerce in Germany lists more than 3,000 members and is the largest bilateral business association in Europe. According to its statistics, the Chamber represents the largest group of foreign investors in Germany, investors who may be turned off by the new tax regulations.