The petitioners base their allegations on violations of several articles of the Basic Law resulting from the continuation of the solidarity surcharge beyond the end of 2019 and question the legality of its continued collection. The BDI concurs with these arguments and expands upon them as follows:

• The collection of the solidarity surcharge in 2020 is legally untenable, as there was no longer any legal basis for it following the expiration of the Solidarity Pact II at the end of 2019. At the same time, this marked the end of the additional funding required for the reconstruction of the new federal states, which was closely linked to the collection of the Solidarity Surtax. Should any additional financial needs for the reconstruction of the new federal states continue to exist, these would have to be covered by the regular federal budget, not by a supplementary tax.
• The continuation of the solidarity surcharge from 2021 onward for certain segments of the population and certain businesses violates the principle of equality under Article 3 of the Basic Law. In particular, the differential treatment of many businesses—especially corporations, which contribute significantly to current record tax revenues—cannot be justified on social policy grounds. Tax redistribution must be achieved through the income tax, not through a supplementary tax. Furthermore, the incentive effect is an irrelevant objective that is inappropriate in the case of a supplementary tax, insofar as a social grading does not directly result from the purpose for which the tax is levied. Furthermore, outside the framework of the provisions governing the content and limits of property rights under Article 14(1), second sentence, of the Basic Law, the decision to only partially abolish the Solidarity Surtax effectively amounted to an increase in income and corporate taxes, without obtaining the necessary consent of the Bundesrat.

Abolition of the Solidarity Surtax for All Taxpayers

Germany’s economic strength stems primarily from the innovative capacity of its companies and their resulting success in international competition. In light of global tax competition, it is imperative to reduce the overall tax burden on companies to an internationally competitive maximum of 25 percent. A prompt abolition of the solidarity surcharge could make a significant contribution to lowering the overall tax burden on companies in Germany—which is already very high by international standards—and thus sustainably strengthen the country’s attractiveness as a business location.

Therefore, a comprehensive reform of the solidarity surcharge is urgently needed. As a first step, it is recommended to lower the rate of the solidarity surcharge, thereby extending the tax relief to all remaining taxpayers. In a second step, the phasing out of the Solidarity Surtax must be accompanied by a binding end date. The Solidarity Surtax should not be integrated into income tax, as this would amount to a tax increase and would be unjustifiable, especially in times of repeated record-level tax surpluses.

Background on the Solidarity Surtax

The Solidarity Surtax was introduced as a supplementary tax under the Solidarity Surtax Act of 1991 to cushion the financial burdens resulting from international conflicts, to support European countries, and ultimately to finance the new federal states following reunification. The Solidarity Surtax amounts to 5.5 percent of the income tax, corporate income tax, payroll tax, and capital gains tax to be assessed. Since 2021, the Solidarity Surtax on payroll and income tax has only been assessed once the calculated payroll tax or income tax reaches a certain threshold. As a result, it is effectively abolished for approximately 90 percent of payroll and income taxpayers. For another approximately 6.5 percent, the surcharge is partially waived.

The Federal Fiscal Court (BFH) ruled in early 2023 that the continued collection of the solidarity surcharge was lawful (BFH, Jan. 17, 2023, Case No. IX R 15/20). The BDI’s statement refers to a lawsuit before the Federal Constitutional Court (BVerfG) that characterizes the continued collection of the solidarity surcharge in 2020 and its continued collection starting in 2021 for the remaining 10 percent of taxpayers as unconstitutional, and in several places offers a critical analysis of the Federal Fiscal Court’s (BFH) ruling from early 2023.