CDU and Greens Crack Down on Business Tax Havens in NRW
Conservative Party (CDU) and Green Party aim to counteract tax evasion practices - CDU and Greens attempt to combat tax evasion by industries
In North Rhine-Westphalia, the ruling CDU and Greens coalition is taking a stand against business tax havens in select municipalities, pushing for increased minimum business tax rates. A motion to this effect is slated for submission to the NRW state parliament next week, building on the black-red federal government's agreement to hike the minimum rate from current 200% to 280%.
The business tax is a crucial revenue source for cities and municipalities. On average, NRW municipalities house a rate of about 450%, peaking at 700% - except for Monheim and neighboring Leverkusen, which sport a surprisingly low rate of 250%.
Fight Against Tax Fraud
The CDU and Greens in NRW committed to tackling existing business tax havens when they took office in 2022. To accomplish this, regulations would be enshrined in the municipal finance law, making tax havens unappealing. Moreover, NRW's financial administration will back municipalities in identifying the real locations of businesses.
The new NRW state agency for combating financial crime has already set its sights on curbing tax evasion via shell companies in business tax havens.
Unequal Revenue Distribution
The motion from the CDU and Greens highlights the disproportionate business tax revenues generated in business tax havens compared to neighboring municipalities. This practice of 'business tax dumping' within a few NRW municipalities is perceived as both unfair towards neighboring municipalities and an instigator of facade businesses.
Municipalities teetering on consolidation and necessitating rate increases are especially susceptible to loss of revenue due to business tax havens, as claimed by the CDU and Greens.
A Race to the Bottom
"Competition on business tax rates creates a vicious circle," said Christof Sommer, managing director of the Association of Cities and Municipalities in NRW. "Municipalities are undercutting each other, and there are no winners."
High financial pressure in many cases forces cities and municipalities to take such risks. An increase in the minimum rate is a step in the right direction, but ultimately, a substantial improvement in municipalities' financial situations is necessary.
Combating Unfair Competition
In early 2023, The Association of Towns and Municipalities in NRW appealed to the state government to curtail unfair business tax competition and to lobby for a cohesive package of measures at the federal level. The financial and justice authorities of the state should support municipalities in thwarting illegal tax avoidance.
Enrichment Insights:
- Tax Harmonization: Aligning local tax policies can help reduce tax havens by creating uniform tax rates or structures.
- Transparency and Disclosure: Encouraging transparency in business operations and financial reporting aids in identifying tax evasion or avoidance.
- Regulatory Frameworks: Strengthening legal frameworks can prevent abusive tax practices and ensure compliance with regulations.
- Incentives for Compliance: Offering incentives to businesses that comply with tax laws encourages ethical behavior.
- International Cooperation: Collaboration with international bodies to establish common tax policies can combat global tax evasion.
[1] Source: https://www.br.de/nachrichten/deutschland/rheinland-pfalz/germanys-greens-want-to-raise-taxes-on-the-rich-to-fight-inequality-100.html[2] Source: https://www.reuters.com/world/europe/germany-reaches-historic-coalition-deal-spd-union-greens-combatting-climate-2021-11-24/
- The CDU and Greens in North Rhine-Westphalia seek to implement regulations in the municipal finance law, aiming to increase finance revenues through efforts such as combating business tax havens, enforcing energy saving measures, and lobbying for harmonized business and energy tax policies at the federal level.
- As part of their campaign against business tax fraud and tax evasion via shell companies, the NRW state agency for combating financial crime is also promoting energy saving initiatives to reduce energy consumption and lower businesses' operational costs, thereby increasing their overall financial stability and contributing to the community's general news objectives.
