Municipal trade tax in Germany

Since then, it has only been used in the profit additions, which include certain financing costs in the municipal trade tax assessment base.

Nevertheless, the municipal trade tax is often justified on the grounds that commercial enterprises should bear the burdens arising from their establishment and existence.

However, although the business tax is intended to refinance infrastructure measures and settlement burdens, its reason is not to compensate for tangible economic benefits.

However, due to the unequal treatment of German and foreign companies and the associated restriction of cross-border trade in services, the ECJ declared this provision to be contrary to EU criminal defenses in its Eurowings ruling.

Freelance or other non-commercial self-employed activities as well as agricultural and forestry operations are not subject to municipal trade tax.

According to the original conception of the legislator, an assumed fictitious standard business operates with its own capital, with its own machinery, but in third-party (rented) premises.

4 GewStG), dividends previously exempted from tax under the provisions of the partial income procedure (Sec.

In addition, foreign profit shares are reduced to take account of the domestic nature of the municipal trade tax.

[4] The extended reduction[5] was introduced in order not to place housing companies in a worse position than private individuals or property-managing partnerships whose income from renting and leasing is not subject to municipal trade tax.

Since the assessment year 2021, income from the supply of electricity in connection with the operation of renewable energy systems within the meaning of Sec.

21 EEG (main application case the operation of photovoltaic systems) or from the operation of charging stations for electric vehicles or electric bicycles does not lead to the denial of the extended property reduction if this income in the fiscal year does not exceed 10 percent of the income from the transfer of use of the real property, cf.

The right to set the assessment rate (or another "economic strength-related tax" to be newly created) is guaranteed to the municipalities by the Basic Law.

In this way, the legislator aims to prevent so-called municipal trade tax havens (e.g. Norderfriedrichskoog, which for a long time had an assessment rate of zero).

[6] By setting the assessment rate, the municipality has a political framework in its hands for attracting or, if necessary, discouraging commercial enterprises.

High assessment rates can lead to migration tendencies, but also result in higher tax revenues per individual company.

However, this does not apply to railroad tracks, pipelines (e.g. for gas, water, electrical energy) and underground mining facilities.

As a rule, the decomposition is based on the ratio of wages paid to employees in the individual municipalities (Sec.

An apportionment also takes place if a permanent establishment is relocated to another municipality during the year, so that different assessment rates may have to be applied for the corresponding periods.

Municipal trade tax thus only becomes an actual burden for sole proprietors and partnerships if the assessment rate exceeds approx.

Since municipal trade tax is directly related to local economic strength, there are clear and lasting differences, especially in the west–east comparison.

To compensate for their lower tax power, they will continue to receive special needs allocations from the federal government until 2019 as part of the Solidarity Pact.

Record holders among municipalities with 50,000 or more inhabitants are Munich, Bottrop, Duisburg and Oberhausen, each with 490%; the lowest rates in this group are charged by Bad Homburg vor der Höhe, Friedrichshafen, Frankfurt (Oder), Lingen, Neu-Ulm and Waiblingen, each with 350%.

The city of Monheim am Rhein has seen a gradual decrease in its municipal trade tax collection rate from 435% (2010) to 250% (2018).

(From 1998 to 1999, municipal trade tax revenue changed by +20% in Hamburg, but by −36% in Kiel, +100% in Schweinfurt, +230% in Werdau and −60% in Leverkusen).

The media report on companies that would no longer pay municipal trade tax at all: among them the (now) world's largest food company Unilever: by restructuring the group by means of a subsidiary ("Monda Beteiligungs GmbH"), which was located in a barn in Norderfriedrichskoog (see below), Dietstraat 13, no municipal trade tax at all was due for years.

To conclude from this that large companies generally avoid paying municipal trade tax would be too sweeping and cannot be substantiated by the empirical data.

Since the various affiliated companies are treated as permanent establishments, the total trade income of the fiscal unity is distributed among the individual municipalities essentially according to payroll.

If the 25% corporate tax (including solidarity surcharge 26.375%) was considered until 2007, Germany would have been in the middle of the pack in an international comparison.

After 15 months of negotiations, however, the commission made no recommendation for municipal trade tax reform at its final meeting on 15 June 2011.