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Minimum assessment rate of 200% for trade tax in conformity with the Basic Law
Press Release No. 12/2010 of 04 March 2010
Order of 27 January 2010
2 BvR 2185/04
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.