Excesses in the German trade tax havens, in which companies use tricks to lower their taxes, are to be combated. The parties in the traffic light coalition agree on this, but not on the right path. SPD and Greens want to raise the minimum rate for trade tax nationwide. The FDP sees it as the task of the federal states and the tax authorities to prevent tax dumping with more and better controls. Because the parties are at odds, the legal requirements for trade tax initially happen: nothing.
“We reject tax avoidance practices in the trade tax with the drastically different assessment rates,” said Bernhard Daldrup, spokesman for local politics of the SPD and member of the finance committee of the Bundestag at the request of the Süddeutsche Zeitung and the ARD magazine “Panorama”. He describes such “tax structures” as “abuse”. The SPD supports an increase in the minimum multiplier for trade tax.
Stefan Schmidt, finance politician for the Greens in the Bundestag, says his parliamentary group is “fundamentally open” to such an increase. One wants to work towards a nationwide solution “that curbs tax avoidance in the long term”. When municipalities radically reduce their trade tax rate “at the expense of surrounding communities, they act in a lack of solidarity and thus harm not only the neighboring communities, but also indirectly the people who live there,” he criticizes.
The deputy FDP parliamentary group leader Christoph Meyer contradicts the suggestion of the SPD and the Greens. The federal states should “exhaust the possibilities of the existing legal situation. A trade tax reform is therefore currently not planned.” However, the federal and state governments are currently advising at the specialist level on how more tax justice can be achieved. Results are not yet available.
Trade tax is the most important source of income for municipalities. Large cities in particular use it to cover expenses for local public transport, childcare and social services. The assessment rate is the measure by which the trade tax is calculated. Each municipality can set the amount itself, it must be at least 200. According to the German Association of Cities and Towns, the average rate in the large municipalities and urban districts is 449 percent.
In the outskirts of large cities, municipalities rely on particularly low rates to attract companies. Examples are Grünwald (rate 240) and Pullach (260) near Munich, Zossen (270) near Berlin and Leverkusen (250) and Monheim (250) near Cologne and Düsseldorf. According to calculations by the Tax Justice Network, the public sector loses one billion euros in trade tax revenue every year as a result of such tax havens.
In these oases, special service providers offer “virtual company offices”. They advertise that they can provide companies with an official company headquarters, including telephone and postal services. Many of these supposed company headquarters look like pure letterbox locations. In addition, the municipalities with low rates also attract asset management from billionaire entrepreneurial families. Grünwald, for example, is also the seat of dozens of real estate companies, some of which have real offices there, but have significantly larger locations in Munich – which also raises the question of tax avoidance strategies.
According to SPD MP Daldrup, his party had proposed raising the minimum rate to 250 percent during the coalition negotiations. “Unfortunately, no agreement could be reached with the coalition partners on this point,” he says. That apparently failed because of the FDP. A value of 250, however, would hardly have hit most municipalities that demand low business taxes anyway.
When asked, the Federal Ministry of Finance, led by FDP leader Christian Lindner, explained that municipalities could “compensate for other locational disadvantages in the competition for commercial settlements” with their tax rates. The minimum rate of 200 percent “prevents individual communities from creating excessive locational advantages by setting very low assessment rates, thereby triggering purely tax-motivated migration” and thus causing damage to other communities as well as the federal and state governments. The ministry goes on to explain that legal requirements should not “disproportionately restrict” the local authorities’ tax rate law.
On the other hand, the German Association of Cities called for a significant increase. Harald Riedel, chairman of the specialist finance and treasurer committee of the city of Nuremberg, has a personal opinion on this and advocates a minimum rate of 300 to 320 percent, “then the worst excesses of dumping would have been curbed.”
Janine Wissler, party leader and member of the Bundestag for the left, wanted to know in a question to the federal government from Finance Minister Lindner how high the tax losses are due to the local authorities’ competition to the bottom. The answer she got was that there was no information available. Wissler criticizes that the federal government must “finally present reliable figures on the extent of abusive tax structuring by letterbox branches and the associated tax losses”.