Cutting the bullshit on business taxes: CDU and Greens take aim at municipal tax havens
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Parties CDU and Green aim to take actions against unlawful tax evasion by corporations - CDU and Greens propose measures against corporate tax evasion in industry
The power duo of CDU and Greens in North Rhine-Westphalia has set its sights on tackling so-called business tax shelters in several municipalities. The ruling coalition wants to convince the new black-red federal government to boost the minimum business tax rate. A proposal is slated to hit the NRW state parliament in the coming week. In their coalition agreement, Union and SPD at the federal level have pledged to crank up the minimum rate from the current 200 to 280 percent.
Corporate tax is a prime income generator for cities and municipalities. According to the proposal, the average rate in NRW municipalities hovers around 450 percent, with a whopping peak of 700 percent. But a few municipalities, including Monheim and Leverkusen, trail far below the average, with a business tax rate of a mere 250 percent.
Stamp out tax evasion
In their state coalition agreement, CDU and Greens had vowed to tackle existing business tax shelters in NRW municipalities when they took office in 2022. To accomplish this, regulations would be embedded in the local finance law, making business tax shelters less attractive.
Moreover, the state's financial administration will help municipalities in locating businesses. The new NRW state agency combating financial crime has already made it a top priority to crack down on tax evasion through shell companies in business tax shelters.
Interestingly, despite the low rate, business tax revenue in these shelters outperforms neighboring municipalities. This form of business tax avoidance practiced by a few NRW municipalities is not only unfair to neighboring towns, but it also fuels letterbox company seats.
Towns on shaky ground
Municipalities navigating a consolidation path and, as a result, hiked their taxes, are especially vulnerable to state action to shield them from aggressive tax competition and revenue loss due to business tax shelters, according to CDU and Greens.
"Spoiling the well for neighbors"
"Competing on business tax rates is a vicious cycle," said the managing director of the NRW Association of Cities and Municipalities, Christof Sommer, on request. "Municipalities spoil each other's wells, and there are only losers."
The fact that cities and municipalities are resorting to these tactics demonstrates the extent of their financial constraints in many cases. An increase in the minimum rate is a step in the right direction. "Ultimately, however, there's no way around substantial improvement in the financial status of municipalities."
The NRW Association of Cities had previously called upon the state government in 2023 to nip unfair business tax competition in the bud and advocate for a comprehensive anti-competition policy at the federal level. The state's financial and justice authorities should help municipalities thwart illegal tax evasion.
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Insight: Recent political developments surrounding the minimum business tax rate in Germany have drawn significant attention, particularly with regard to the positions of the CDU and the Greens. By examining current information, there's no clear, recent proposal on the table from the CDU and Greens together aimed at increasing the minimum business tax rate in North Rhine-Westphalia or at the federal level. Though the CDU has expressed an interest in economic competitiveness, corporate tax simplification, and support for traditional industries, it has not explicitly focused on raising minimum business taxes. Additionally, the federal government recently unveiled a corporate tax breaks package worth €45.8 billion to stimulate the economy, rather than increasing business taxation. In North Rhine-Westphalia, the focus of the state government has been on job security and industrial policy, and there's no mention of raising business tax rates in recent reports.
Sources: 1. Der Spiegel 2. Handelsblatt 3. Welt 4. Bundesregierung 5. WirtschaftsWoche
- In efforts to combat business tax shelters and promote fair tax competition within North Rhine-Westphalia, the CDU and Greens have proposed boosting the minimum business tax rate, which they aim to discuss further in the upcoming state parliament session.
- The ongoing debate over business tax rates is not just a finance or governance issue, but also a matter of concern for the general-news, politics, business, and community aid sectors as it could significantly impact the financial status of municipalities and the overall economy.
