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Tax haven for German ICT firms to disappear

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Does Norderfriedrichskoog really need an IT company to serve a community of just 47 inhabitants and a dozen thatched homesteads 200 kilometres north of Hamburg?

Well, yes. According to the Offshore Financial Review, it is the world's most unfashionable tax haven. Little Monaco in Germany, they call this god forsaken place. Think cows and farmland, instead of sandy beaches and swaying palm trees. Nor are there any shops, hotels or pubs in this hamlet along the coast of the German state of Schleswig Holstein (to have a peek, follow this link. )

Not that anyone cares. For local businesses, this is haven. The village (with only two streets) levies no trade tax, thanks to a decree issued 300 years ago by a local duke.

To benefit from the appropriate tax regimes, a company’s records, communications and core business activities must be located in Nordfriedrichskoog. That’s why ten years ago farmers began renting out barns and cowsheds to Deutsche Bank, Eli Lilly, Unilever, Lufthansa and power giant E.On, to name but a few.

Deutsche Telekom in particular adores this tiny parish in the North: it dug many ditches for underground phone lines.

Over 500 companies are now located in Norderfriedrichskoog, including dozens of hi-tech companies. We searched the Internet and found: ERO Online GmbH, SEX.DE, 2-Gather GmbH, OMEGA EDV-Internet- und Managementsysteme GmbH, SMC Netze und Kommunikations- Beratung GmbH, VR Telecommunications GmbH & Co, and AI Aktuelle Information GmbH Agentur für Telekommunikation & Co.

Some well-known IT companies may also have registered passive investment subsidiaries in Germany to siphon off much of their profits, but there is no way of telling. The folks of Norderfriedrichskoog are staying tight-lipped.

Perhaps not for long. The booming years for Norderfriedrichskoog may soon be over. This week, the German finance ministry hopes to close the village’s tax loophole. There are too many dubious letter box companies, the department says. Local authorities must set a minimum rate for local business taxes. The reform already passed the Bundestag (the German parliament), and this Friday the Federal Council or Bundesrat will cast its vote. German cowshed IT and telecom companies will have to move to Bermuda, or pay taxes. ®

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