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The discussion about having a fair tax system for both municipal and private sector recycling businesses continues unabated. The fact that municipal businesses do not have to charge VAT on their services still dismays their private sector competitors. The President of the BDE (Federal Association of the German Waste Management Industry) Peter Kurth wrote an open letter to the Federal Minister of Finance Wolfgang Schäuble (CDU) in which he criticised this system of “unfair competition” between public and private sector recycling companies.
Peter Kurth, BDE President
Most people are horrified when they hear that large international corporations have based their head office abroad in order to lower their tax bill. Immediately, discussions start up about unfair competition. This feeling about what is just and unjust is not replicated, however, when it comes to the energy sector or the waste management and recycling industry. BDE President Peter Kurth believes that the fact municipal companies are exempt from charging VAT is just as unfair. This German law applies to all public sector companies (i.e. institutions governed by public law, special purpose associations and owner-operated municipal enterprises) and induces just as strong a feeling of being treated unfairly, in particular among the private sector firms affected by this. Very few countries in the European Union still have such tax laws in place.
The importance of public sector business activities has undergone a change over the last few years – especially at local authority level. The turnover of municipal companies more than doubled between 2000 and 2011. Lying at 267 billion euros, this makes up almost ten percent of the country’s gross domestic product. When taking part in public tenders, these municipal firms are even able to directly advertise the fact that they have lower costs. Fair competition, Peter Kurth says, cannot tolerate such a legal discrimination of market players. He continued: “Just recently, a case was brought in front of a Bavarian council by a private sector firm to found a special purpose association to take over a waste management contract. Its argument for doing this was that it wouldn’t have to pay VAT. This clearly illustrates the fact that the current situation is unfair.” There is absolutely no difference here to private sector corporations trying to avoid paying taxes.
In his letter, Peter Kurth calls on the Federal Minister of Finance Schäuble to re-examine these tax regulations. Steps should also be taken to see what the consequences would be if such an amendment to the VAT law were to be made. Such an investigation would also send a clear message that the tax authorities were taking the problem of unfair tax systems seriously.