On November 23rd, 2018, Robert Ullmann (University of Augsburg) presented his current research topic “Norderfriedrichskoog! Tax Havens, Tax Competition and the Introduction of a Minimum Tax Rate ” (co-authored with William C. Boning and Joel Slemrod, both from the University of Michigan) at the WHU Research Seminar in Finance & Accounting.
German municipalities levy local business taxes (Gewerbesteuer) by choosing a tax rate to apply to local reported business income, where tax base is defined uniformly on a national level. Prior to the federal government's imposition of a minimum tax rate in 2004, some municipalities, such as the tiny North Sea town of Norderfriedrichskoog, chose to act as tax havens by setting a tax rate of zero. The authors combine administrative microdata from firm tax returns with information at the municipality level to study the choice to become a tax haven, the extent to which havens attracted income from other municipalities before and after the introduction of a minimum tax rate, and how introducing a minimum tax rate affected the tax competition equilibrium among non-haven countries. Evidence suggests that income was shifted into haven municipalities both before and after the introduction of the minimum tax rate. Preliminary findings also indicate that the mandated increase in havens’ tax rates did not lead to rate increases (or decreases) among either municipalities in general or tax haven municipalities’ geographic neighbors. In contrast to the literature on global business tax competition, their preferred specifications, which leverage the minimum tax rate imposition for identification, find no evidence of competition in business tax rates. They find that tax havens largely do not affect the business tax rates set by non-havens, suggesting that a global minimum tax rate applied only to international tax havens would have little effect on tax competition of non-haven countries.