Rising Tax Competition Among Local Authorities Intensifies
Major Metropolitan Areas in Germany witness intensified Tax Competition among Municipalities
Berlin - A recent analysis by the German Industry and Commerce Association (DIHK) shows a surge in tax competition among municipalities in significant urban areas. This development is evident in the fluctuating tax rates, particularly for trade tax, as reported by "Die Welt am Sonntag."
The average trade tax rate across Germany saw a marginal dip last year, from 436% in 2019 to 435%, marking the first yearly decline in years. Interestingly, the municipalities with the lowest rates are strategically positioned near strong economic hubs, such as Leverkusen, Monheim, and Unterhaching near Munich. They have established a rate of 250%, while the highest rates, amounting to 580%, are set by Oberhausen and Mülheim.
Despite the COVID-19 pandemic and associated tax losses, the German Association of Towns and Municipalities anticipates that trade tax rates will hold steady next year. Gerd Landsberg, CEO of the German Association of Towns and Municipalities, noted that while municipalities will strive for a balanced budget, they will also aim to avoid imposing additional burdens on businesses and citizens during the pandemic.
Landsberg further called for the government to provide additional aid to strengthen municipal finances beyond 2020. This week, a decision was reached that the federal and state governments will compensate municipalities for trade tax losses this year. It is noteworthy that the trade tax accounts for approximately half of the tax burden for capital companies in Germany.
The factors influencing this tax competition among municipalities involve variable trade tax rates, municipal financial needs, economic conditions and location, competition from neighboring municipalities, state and federal policies, and double taxation agreements (in an international context). Each of these factors plays a crucial role in shaping the tax environment in Germany's metropolitan areas and influencing the municipalities' strategies to attract business investment through trade tax rates.
In major metropolitan regions like Berlin, municipalities balance their tax rates to attract businesses while ensuring adequate revenue for public services. This equilibrium is influenced by the local economic conditions, regional competition, and national policies. These dynamics present an intricate interplay that ultimately shapes the tax landscape in Germany's major urban areas.
Other factors, such as varying finance policies in politics and general-news reports, also play a significant role in determining the tax landscape of major metropolitan areas in Germany, as municipalities wittingly adjust their trade tax rates to attract businesses while maintaining sustainable fiscal health. Businesses strategically eyeing locations in these urban hubs often evaluate not only the tax rates but also the broader economic and political climate when deciding where to invest.
