Sven Giegold
Member of the European Parliament – Greens/EFA Group

Speaker of the German Green Delegation

New study on tax avoidance by real estate investors: Double damage to the common good

Bild zum Thema Wohnen mit vielen Balkonen von robertprax veröffentlicht auf pixabay.com

Many citizens in Germany are suffering from exploding rents and have to spend an ever greater share of their income on housing. Our new study shows with several case studies: Rents are driven partly by real estate investors who shift their profits abroad and thus do not pay taxes in Germany. Municipalities lose trade tax revenues and the federal and state governments lose corporate income tax.

Companies based in Luxembourg buy real estate in prime locations in Germany. They shift their profits to Luxembourg via intra-company loans and thus pay practically no taxes at the location of the property. In Luxembourg marginal taxes of around 0.1% are incurred. From there the profits are mostly channelled to tax havens overseas, where hardly any taxes are due. Due to the anonymity of the tax havens, the beneficial owners behind the large real estate companies often also avoid any tax liability in Germany. These are the findings of a study I commissioned from tax expert Christoph Trautvetter. The study examined the corporate structure and tax practices of real estate companies such as Blackstone or the Pears brothers.

Such real estate investors harm the common good in two ways: they burden ordinary citizens with high rents and by avoiding taxes they don’t pay their contribution to the public purse, from which they benefit locally. Average earners in Germany have to pay a considerable portion of their income as taxes, while wealthy investors move their profits abroad practically untaxed. This is a perverse business model. These investors target the common good with a wrecking ball.

Germany must finally pass laws that put a stop to such tax avoidance models. The German government has it in its hands to end this ongoing damage to the common good. A good example is Denmark, where interest flows to parent companies outside the national borders are subject to a withholding tax. France has set limits on the interest rates on intra-group-loans which prevent the large-scale outflow of profits. There are already some laws in Germany with the same goal, but the study shows that they don’t bite and urgently need to be tightened. It  would be worth analysing the property sector for tax avoidance models.

European tax havens such as Luxembourg, the Netherlands or Ireland should finally stop cutting the ground under the feet of their European neighbours with legal tax saving models. It is hypocritical to preach prudence and budgetary discipline on the one hand, but on the other hand be directly responsible for the lack of revenues of the neighbors. We Greens will set up a discussion on these tax models in the new tax subcommittee of the European Parliament.

In addition to national measures, we need better rules at European and international level in order to put an end to profit shifting and tax avoidance practices which harm the common good. An effective minimum tax rate for all corporate profits could achieve this if it is set sufficiently high and also applies to real estate investors.

With green European greetings,

Sven Giegold

Link to the new study on the tax avoidance practices of real estate investors: https://sven-giegold.de/wp-content/uploads/2020/09/200929_Taxing-real-estate-income-the-role-of-Luxembourg_final.pdf 

P.S.: TODAY: Italian-German webinar on “Funding the Corona Recovery by curbing tax dumping and money laundering” with Finance Ministers Scholz (Germany) und Gualtieri (Italy) on Wednesday, 30.9.2020 7-8pm CEST. Register here: https://us02web.zoom.us/webinar/register/WN_Tt9-EIA_Q9-1eC_QetcPCg