The lifting rate in business tax is the key to tax calculation. Finally, it determines the amount of business tax. The height of the lifting set is variable, because it is determined by the cities and municipalities on their own. On the basis of examples and comparisons with statistical data, we will explain the importance of the levy rate both in the calculation of trade tax and as a local policy instrument.

Trade tax is legally the subject of the Trade Tax Act. It stipulates that the municipalities collect the business tax as a municipal tax. Accordingly, each municipality should decide individually on the relative amount of the business tax. So the lifting set was introduced as an instrument for this. This ensures, on the one hand, that the calculation of the trade tax follows a uniform procedure throughout Germany, but on the other hand, that the respective municipalities can decide on the relative amount of the trade tax individually. Advantages other than incentives to locate businesses are thus largely excluded, which creates a certain transparency and comparability. For this reason alone, the lifting stock plays a central role in the economic policy orientation of the municipalities.

At this point one may point to the fact that this leads to competitive behaviour among municipalities, in which one tries to undercut one another with the lowest possible lifting load. Of course, municipalities also came up with the idea of setting a 0% levy, so that the trade tax as a municipal source of income was completely waived. To correct this, the legislature determined that the lifting set must be at least 200%.

Furthermore, the trade tax law is strongly aligned with corporate tax law, to which it also takes several direct references. In addition, the Income Tax Act is also involved in many aspects of the Trade Tax Act. However, the levy for determining a tax is a unique feature of the tax collection by the municipalities. Thus, in addition to trade tax law, the levy is also applied in property tax law.

2nd calculation of business tax

When calculating business tax, the annual profit after tax is the starting point for consideration. Additions and reductions should be made to this end. After deduction of a possible allowance and offsetting of a possible loss deduction, the business income results. It forms the basis for determining business tax. The trade tax levy of the municipality entitled to collect trade tax plays an important role here. After all, it is the municipalities that decide on the amount of the lift. This becomes apparent at the latest when a company operates several companies in different municipalities. Although each municipality sets its own levy, each municipality is entitled only to a share of the business tax, not each to its own full business tax amount. In order to pay the trade tax proportionately to the municipalities concerned, the so-called dismantling procedure is then applied.

2.1.

To the profit from business operations are added in particular the losses of other companies in which there is a co-entrepreneurship, the deductible donations according to § 9 (1) no. 2 KStG up to a certain limit and a quarter of the sum of various expenses, if it exceeds the limit of EUR 100,000. These expenses concern, in the broadest sense, interest expenses, profit shares of silent partners and rents and royalties to a certain extent. Rents for movable assets are estimated at 20%, rents for immovable assets at 50% and royalties at 25%.

2.2. reductions

Reductions include, in particular, 1.2% of the unit value of land subject to property tax and belonging to business assets. Commercial real estate companies can instead make use of the extended trade tax reduction pursuant to § 9 No. 1 S. 2 GewStG on request.

Furthermore, profits from other companies in which the taxable business is involved as a co-contractor are to be reduced. This is the equivalent of adding the losses in such a case. In addition, deductible donations, with the exception of party donations, are reduced again, which causes the effect that only donations to parties increase the business income.

2.3. offsetting any losses from previous years

The business income so far determined is reduced by the losses carried forward from previous years. However, losses are only allowed up to a certain amount. A reduction in business income up to an amount of EUR 1,000,000 can be made. However, if the business income is more than EUR 1,000,000, this can be reduced to a maximum of 60% of the carried forward loss. The resulting remaining loss is then carried forward further.

2.4. Control number and control magnitude

Next, this amount will be rounded to full EUR 100. Thus, we have determined the decisive commercial income. This can be reduced by an allowance of EUR 24,500 for sole proprietorships and partnerships, but corporations are excluded. The business income must now be multiplied by the tax measurement number of 3.5% in order to determine the tax measurement amount in this way. The trade tax measurement amount is communicated by the tax office to both the company and the respective municipality.

2.5. Municipal tax: Application of the levy rate of business tax

On this basis, the municipality determines the trade tax. In doing so, it multiplies the trade tax measurement amount by the lifting rate it sets. This results in the trade tax on which quarterly advance payments are to be made.

2.6. Disposal procedure in business tax

If, as already described, a company has to pay trade tax to several municipalities, the municipalities entitled to collect only receive a share of the total trade tax. This percentage shall be determined using the dissection method. The relative level of wages paid to employees at the affected locations is of central importance, excluding apprentices and temporary workers. The remuneration of the Managing Directors, on the other hand, is essentially set at EUR 25,000 and divided up to the extent that the Managing Directors are present and work there.

Similar to the information about the amount of the tax measurement by the tax office, the notification of the dismantling is also made to the company as well as to the affected municipalities. This means that all parties involved in taxation are aware of the necessary data. However, if complaints are to be made to the decisions, the competent tax office must be informed. In the case of dismantling, this is the tax office in whose territory the most economically significant establishment of a company is located.

As already briefly mentioned, the municipalities' taxation is an instrument for regulating the taxation of companies. Through this mechanism, municipalities try to control the influx and creation of companies in their territory.

Another aspect that comes into consideration is the type of companies that should be preferred by the municipalities. As we want to show in a few examples, this is of course also dependent, among other things, on the regional population structure.

3.1. The German average for lifting load

In 2010, the average trade tax rate in Germany was 390%. By 2016, it increased to 400%. Since cities and municipalities tend to continue to increase the trade tax, an average lifting rate of more than 400% can now be assumed. It is expected that this trend will continue in the next few years.

3.2. Municipalities with the lowest lifting load in Germany

Despite the general increase in lifting rates, there are still municipalities in Germany that only use the lowest lifting rate of 200%. In the past, many of you were also among those players who operated with a 0% lifting set. A number of municipalities in Brandenburg and Mecklenburg-Vorpommern are among them. Among these communities with the lowest lifting load, only Zossen in Brandenburg is among those with a population of significantly more than 1,000 inhabitants. As we shall see in a moment, however, a small population is not a compelling reason for a municipality to limit the lifting rate to the minimum.

3.3. Leading the lift: Dierfeld in Rhineland-Palatinate

With a lifting set of 900%, the municipality of Dierfeld in Rhineland-Palatinate is at the top of all German municipalities. This is obviously due to the population structure of the community. With a population of less than 20, it is one of the municipalities in Germany with the lowest population. The same applies to the second-ranked municipality Wettlingen with a lifting set of 600%. This group of small municipalities with unusually high lifting loads also includes Hisel, which, like the other two municipalities listed here, is also located in Rhineland-Palatinate. Here a lifting set of 500% applies. The fact that such a high lifting rate applies in these small communities may be due to the local economic conditions. For example, Dierfeld was able to keep itself debt-free with the high lifting rate and thus prevent an association with other municipalities. And in the case of Wettlingen Municipality, RWE is the only company to pay trade taxes (for the use of the overland power line).

3.4 Away from the exotics: lifting sets of large German cities

3.5 focal point North Rhine-Westphalia