Restoration of a tax on corporate cross holdings could go ahead as part of broader plans to reform corporate taxation in Germany from 2008, according to reports.

Christian Democrat Union lawmaker Leo Dautzenburg, a member of the CDU team which is currently locked in negotiations with the Social Democrat Party (SPD) over Germany's future tax and finance policies, told Bloomberg News in an interview this week that both parties have agreed that sales of corporate stakes in large German companies should become subject to tax at a "moderate rate".

A similar tax had been levied at a rate of 50% but was abolished by former Chancellor Gerhard Schroeder in 2000, which meant that the sale of cross holdings has been free of tax since January 2002.

Meanwhile, negotiations towards broader tax reform starting in 2008 appear to be back on track after the resignation of SPD leader Franz Muntefering, and the withdrawal of Bavarian premier Edmund Stiober from the talks earlier this week.

While this development sparked fears that the tense negotiations could collapse altogether, reports indicate that lawmakers are making progress towards a cross-party agreement to streamline Germany's company tax system by scrapping the difference between small business partnerships, which pay income tax on earnings, and incorporated companies, which pay corporate tax on their profits.

These reforms could also be accompanied by a cut in the headline corporate tax rate by several percentage points from the current level of 25% - a long sought after goal for many lawmakers and most of the business community, but which has been sidelined on previous occasions due to budgetary constraints.