Corporate Levies

A German Tax Haven

Der Bürgermeister von Monheim, Daniel Zimmermann von der Jugendpartei Peto, steht am Donnerstag (12.01.2012) in Monheim vor dem Rathaus. In Monheim steuert der jüngste Bürgermeister Nordrhein-Westfalens die Geschicke der Stadt. Inzwischen schreibt die Kommune schwarze statt rote Zahlen - und will jetzt auch noch Steuerparadies werden. Foto: Oliver Berg dpa/lnw (zu dpa/lnw: "Geldregen für Monheim: Jüngster Bürgermeister plant Steuerparadies" vom 15.01.2012) [ Rechtehinweis: (c) dpa ]
Monheim am Rhein's mayor Daniel Zimmermann is turning the Rhine river town into a tax haven.
  • Why it matters

    Why it matters

    • As business associations complain about steadily rising corporate tax bills in many German municipalities, so-called “mailbox companies” are setting up shop in low-tax towns.
  • Facts


    • In Germany, the 20 most expensive municipalities for companies are all in the western state of North Rhine-Westphalia (NRW), Germany’s most populous state.
    • The lowest corporate tax rates in Germany have been set by local authorities close to major cities. Examples include the NRW town of Monheim near the state capital of Düsseldorf.
    • Cities in the south of Germany have relatively low business taxes.
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Let’s begin this story, like many other articles written about tax havens, with a mailbox. Except that this one isn’t in Dublin or Panama City but in a house in Monheim am Rhein, a town on the banks of the Rhine river in the state of North Rhine-Westphalia in western Germany.

It’s a house that in the kindest of terms could be called functional: two floors, a flat roof, a broad driveway leading to a garage, a balcony that looks like a pulled-out kitchen drawer and a few randomly-spaced windows.

The mailbox is also an expedient model, shoebox-size, white and square, “powder-coated” and made of “galvanized sheet steel,” according to the product label. Sounds sturdy, and that’s what it’s meant to be.

A grand total of 34 companies have their address at the house. Some of the firms have fine-sounding names like Quality Royal GmbH and Königskultur GmbH. The thing that has attracted all these companies is in the advertising blurb of Monheim 285, the company running the operation: “For all who wish to move their registered office to Monheim, quickly, easily and without major additional costs.” Such companies can “benefit from the low corporate tax rate in North Rhine-Westphalia,” a service available for annual fees starting at €129 ($140.37).

“Since the first time we lowered the tax rate, over 300 firms have moved to us. ”

Daniel Zimmermann,, Mayor of Monheim am Rhein

A house full of mailbox companies right in the middle of Germany. Well, so what?

“Since the first time we lowered the tax rate, over 300 firms have moved to us,” said Daniel Zimmermann, Monheim’s mayor. The town, population 40,000 inhabitants, is located between Düsseldorf and Leverkusen.

Mr. Zimmermann has been praised by the local press for years for taking the opposite path in the middle of the high-tax state of North Rhine-Westphalia and for straightening out the town’s budget by lowering taxes. For the taxpayers’ association, his stance is proof that tax competition works, if it’s used correctly. For the conservative opposition, Mr. Zimmermann is a monumental reminder that NRW wouldn’t be so broke if the government only understood more about business economics.

Actually, Mr. Zimmermann stole the idea. When he took office in 2009, debts were mounting in Monheim while the neighboring town of Langenfeld had just balanced its budget with the same strategy on taxes. So Mr. Zimmermann lowered taxes below those of his neighbors, and today Monheim is on the road to being debt-free. Since then, people in  Langenfeld have been ranting and complaining.

Which raises some questions. Is anyone benefiting from this model besides the companies? And how lawful is it, then, to make use of this tax advantage?

Mr. Zimmermann doesn’t want to hear such questions.

“We’re not taking anything away from anybody. We are just seeing to it that companies that would otherwise leave the country stay in Germany,” he said.

Anyway, he isn’t thinking in terms of places like Oberhausen or Cologne. He’s thinking internationally. In the coming week, the town council is planned to decide on another tax reduction. It’s a matter of only 3 percentage points, but they are decisive.

“So far our tax rate for companies has been just over 25 percent. With the new law we would cross the magic threshold and leave Austria and the Netherlands behind us,” he said.

For comparison, take look at the applicable tax-rate rankings of the multinational Organisation for Economic Co-operation and Development (OECD): Germany takes the 31st spot out of 35 member countries, between Greece and Italy. Among major German cities, Oberhausen demands the most taxes, and Ulm and Wolfsburg demand the least.

In Mr. Zimmermann’s world, companies such as chemical firm Oxea are moving to Monheim. Oxea is building its new company headquarters, which will house a staff of 200, on the banks of the Rhine and is moving out of Oberhausen. The move will save the company almost 10 percent in taxes per year.

Politicians in Oberhausen might be ranting about the move, but in terms of business economics, little can be said against such a relocation. Oxea is likely to become more competitive because of the tax savings. It also seems reasonable that the company will pay its taxes in Monheim, where it uses the town’s infrastructure.

Oxea might be an example, but it’s in no way typical. Most of the new businesses come in differently, and some do it in a quiet fashion.

Take, for example, the Monheim address Siemensstrasse 16 b. It’s yet another functional building, only twice as high and with fewer windows than the building at Monheim 285. No surprise, for the Siemensstrasse address is where Catholic charity organization Malteser Monheim stores and maintains its ambulances, food trucks and portable toilets. If you walk around the building, you’ll find another small, white mailbox.

This time, the mailbox is for Devario Invest GmbH, Tileo Beteiligungs GmbH and Toeller Solar. Behind all the names is one man: Torsten Toeller, owner of the Fressnapf Group. Even if he employs more than 1,000 people at his group’s main location in Krefeld, Fressnapf pays its taxes in Monheim.

Judging by the looks of this building, it would have space for a couple dozen employees at most, given that the structure is also the location for the Malteser emergency call center and ambulance service.

At least Mr. Toeller doesn’t have to endure accusations of being the only one to use the Monheim tax rate in a rather creative way. Mast-Jägermeister SE, for example, also has an address and little more in the Rheinpark industrial area in Monheim. The company’s headquarters in Wolfenbüttel didn’t want to comment on what the group gains by the location.

Monheim seems to have a similar meaning as a tax location for large chemical companies that Ireland has for Apple. For example, the world’s largest chemicals firm BASF: The company actually produces a special polymer, polyurethane, in Lemförde in Lower Saxony, and close to 1,500 employees there generate €2 billion ($2.18 billion) in sales. But the BASF Polyurethanes Licensing GmbH manages with a mailbox in Monheim. So the €22 million income in taxes that was earned last year in Lemförde was paid in Monheim.

In international tax jargon, something like that is called a patent box. Subsidiary companies are forced to pay licensing fees to another subsidiary for its products. On the one hand, that reduces revenue but, on the other hand, raises revenue with low-taxed patent administration.

BASF also moved the seat of Cognis IP Management, the tax shell of the group subsidiary, Cognis, which actually operates it businesses in neighboring Düsseldorf, to Monheim in 2014. According to the Bundesanzeiger, which is similar to the Federal Register in the United States, its business model is: “The CIP exclusively obtains licensing revenues from affiliated companies.” And further: “The company employs no active employees in the reporting year.”

Nevertheless, it disclosed paying €14 million in income tax in 2015, subtracting corporate tax and the solidarity surcharge, and what remains is about €6 million in trade taxes.

For years, the tax practices of the Leverkusen chemical giant, Bayer, has been causing frustration in the area. Although Bayer has been settled for ages in Monheim with parts of its Crop Science division, more and more parts of the company have been moving to Monheim since its tax rates went down.

Monheim, a town a quarter the size of Leverkusen, today is collecting four times as much income from corporate taxes as Leverkusen. Altogether, Monheim’s income totals €225 million, as much as in Dresden or Duisburg. If all Monheim companies paid the average German corporate tax, the state would have around €46 million more at its disposal.

For the time being, the competitors need not worry that Monheim could lower taxes even more.

“Then it wouldn’t be worth it for us anymore,” Mr. Zimmermann said.

For there’s one rule the municipalities can’t change: The lower the tax rate, the more tax revenue they must pass on to the state. At the current rate, almost 90 percent of the money collected in Monheim is flowing into the state’s coffers.

Mr. Zimmermann is inspired by international tax havens. For example, Luxembourg has been continually criticized for giving special tax advantages to individual companies. The city of Monheim can’t go that far. Just the same, Mr. Zimmermann does what he can. According to his principle, if a company comes to Monheim, it’ll drop the tax rate a couple of points.

“We could then offset the losses from the falling tax rate with specific additional revenue,” Mr. Zimmermann said in describing the town’s logic about such deals.

A deal in the interest of both town and companies. Or maybe at the expense of third parties.


This article originally appeared in the financial weekly WirtschaftsWoche. To reach the author:

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