Federal Constitutional Court - Press office -

Press release no. 12/2010 of 4 March 2010

Order of 27 January 2010 – 2 BvR 2185/04 and 2 BvR 2189/04 –

Minimum assessment rate of 200% for trade tax
in conformity with the Basic Law


Since 1 January 2004, under § 1, § 16.4 sentence 2 of the Trade Tax Act 
(Gewerbesteuergesetz), local authorities have been obliged to levy trade 
tax at a minimum rate of 200%. Before this, the local authorities were 
at liberty to fix any assessment rate they chose, or by fixing the 
assessment rate at zero to refrain from assessing trade tax at all. 

The complainants, two local authorities in Brandenburg, challenge the 
new arrangement in constitutional complaints lodged by a local 
authority. They wish to continue to have the possibility, as in the 
past, of fixing lower assessment rates or no trade tax. 

The Second Senate of the Federal Constitutional Court dismissed the 
constitutional complaints as unfounded. The statutory minimum assessment 
rate of 200% for trade tax is in conformity with the Basic Law 
(Grundgesetz – GG). The new arrangement does not violate the 
constitutionally guaranteed fiscal sovereignty of local authorities and 
the autonomy with regard to assessment rates contained in this. Article 
28.2 in conjunction with Article 106.6 GG does not guarantee that local 
authorities are given the right to fix the assessment rate of trade tax 
without statutory restrictions. The restriction of the right to decide 
the assessment rate that is contained in the statutory minimum 
assessment rate of 200% does not impinge on the core of the financial 
autonomy of the local authority, because local authorities retain 
substantial scope for structuring. 

In essence, the decision is based on the following considerations: 

The new arrangement is covered by the Federal Government’s legislative 
competence under Article 105.2 in conjunction with Article 72.2 GG. It 
is necessary to preserve the unity of law and the economy in the 
interest of the whole country. 

The provisions do not violate the increased financial sovereignty of 
local authorities guaranteed in the Basic Law as part of the general 
guarantee of self-government (Article 28.2 sentence 1 GG) and 
strengthened by the rights established in Article 106.6 sentence 2 and 
Article 28.2 sentence 3 GG. 

Article 28.2 sentence 3 and Article 106.6 sentence 2 GG do not guarantee 
that the local authorities are given the right to fix the assessment 
rate of trade tax without statutory restrictions. In particular, the 
local authorities’ autonomy with regard to assessment rates does not 
require that the local authorities should have an indefeasible power to 
refrain from levying trade tax altogether. Neither in its original 
version nor in its later amendments is the Basic Law based on a 
tradition in law below the constitutional level of unrestricted freedom 
for the local authorities in structuring assessment rates. Guaranteeing 
a right to fix assessment rates is a competitive function, and there may 
be statutory provisions which are compatible with it that restrict the 
freedom of competitive behaviour in order to keep competition in limits 
compatible with the public interest. Local authorities are given no 
constitutional guarantee, either of a particular revenue or of trade tax 
as such. 

However, the constitutional guarantee of the local authorities’ right to 
fix assessment rates does not permit limitations at will. The “framework 
of statutes” to which Article 106.6 sentence 2 GG binds the right of 
fixing assessment rates may not be narrowed down at will. The local 
authorities must in essence retain their financial sovereignty. The 
right to fix assessment rates may not be disproportionately restricted. 

The statutory minimum trade tax assessment rate of 200% satisfies these 
requirements. The provision serves the legitimate goal of preventing the 
creation of “tax havens”, encouraging the distribution of business 
enterprises nationwide and safeguarding the trade tax apportionment 
constitutionally provided for. Since the calculation of the 
apportionment depends on the actual trade tax revenue, a local authority 
can avoid paying over the apportionment by fixing the assessment rate at 
zero. Laying down a minimum assessment rate prevents local authorities 
receiving a share of income tax without participating in the financing 
of this by way of the trade tax apportionment. A minimum assessment rate 
of 200% also remains within the limits of reasonableness. The local 
authorities retain the right to fix the assessment rate as such. The 
moderate minimum assessment rate of 200%, which is far below average, 
enables them still to compensate for location disadvantages and to take 
part in competition between local authorities to attract businesses. 
They retain substantial latitude in structuring. 


This press release is also available in the original german version.