Low Business Tax Rates Raise Concerns in North Rhine-Westphalia
Corporate Tax Evasion: CDU and Greens Advocate for Stronger Measures Against Tax Object Shifting - CDU and Greens propose measures to combat tax evolution among industries
The coalition of CDU and Greens in North Rhine-Westphalia (NRW) is taking a stance against business tax havens in some municipalities. They're urging the newly formed black-red federal government to raise the minimum business tax rate. By next week, they'll submit a motion to the NRW state parliament. In their coalition agreement, Union and SPD have agreed to hike the minimum rate from the current 200 to 280 percent [1][2].
The business tax is a significant revenue source for cities and municipalities. The average business tax rate in NRW municipalities hover around 450 percent, with Monheim and neighboring Leverkusen sporting a rate of 250 percent, well below the average [1].
Although they're offering a lower tax rate, these municipalities manage to generate higher business tax revenue compared to neighboring municipalities, a practice known as "business tax dumping." This practice, present in only a few NRW municipalities, is criticized for being unfair to neighboring communities and promoting letterbox company seats [1].
Greens and CDU, since taking office in 2022, had agreed to combat existing business tax havens at the municipal level. The plan was to implement regulations in the municipal finance law that would discourage such tax havens [3].
NRW's financial administration will help municipalities locate businesses, and the new NRW authority against financial crime has made fighting tax evasion through shell companies in business tax havens a priority [3].
The CDU and Greens contend that municipalities on a consolidation path, which have had to raise rates, need regulatory measures from the state to protect them from aggressive tax competition and revenue loss due to business tax havens [1][3].
Christof Sommer, managing director of the Association of Cities and Municipalities in NRW, expressed concern, stating, "A bidding war on business tax rates is a vicious circle. Communities are undermining each other and there are only losers" [3].
The Association had already called on the state government in early 2023 to combat unfair business tax competition from business tax havens and advocate for a comprehensive package of measures at the federal level. They also urged the financial and justice authorities to support municipalities in battling illegal tax evasion [3].
- Business Tax
- CDU
- NRW
- North Rhine-Westphalia
- Municipality
- Coalition Agreement
- Düsseldorf
- Federal Government
- SPD
- Tax Haven
- Monheim
- Leverkusen
Financial aid in the form of lower business tax rates could potentially lead to increased revenue for municipalities, but this practice, known as "business tax dumping," is criticized by the CDU and Greens in North Rhine-Westphalia (NRW) as it is considered unfair to neighboring communities and promotes the creation of letterbox company seats. The CDU and Greens, since taking office in 2022, have been advocating for regulatory measures to combat existing business tax havens, aiming to implement regulations in the municipal finance law and support municipalities in battling illegal tax evasion.
