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"Unequal treatment is justified" - you should know that about the Soli judgment

The hearing on the solidarity surcharge before the Federal Fiscal Court (BFH) in Munich ended with a surprise.

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"Unequal treatment is justified" - you should know that about the Soli judgment

The hearing on the solidarity surcharge before the Federal Fiscal Court (BFH) in Munich ended with a surprise. The judges of the IX. Senates chaired by BFH President Hans-Josef Thesling confirmed the legality of the solidarity surcharge for income tax, corporation tax and withholding tax.

The decision is not only a setback for the plaintiff couple from near Aschaffenburg and the millions remaining to pay the solidarity surcharge, but also for Federal Finance Minister Christian Lindner (FDP). In the past few weeks, he had made no secret of the fact that he would rather abolish the special levy completely today than tomorrow.

He sees it as a "contribution to strengthening our country's fiscal competitiveness and the credibility of political commitments." After the BFH's decision, he now has to rely on the Federal Constitutional Court dealing with the issue as quickly as possible.

In recent years, tax and constitutional lawyers have mostly assumed that when the Solidarity Pact II, which regulated the financial aid for the eastern German states, expires in 2019, the solidarity surcharge may no longer be levied.

The scientific service of the Bundestag wrote four years ago that after reviewing the specialist literature, it saw a “very high risk” that the special levy for assessment periods from 2020 onwards would ultimately be declared unconstitutional by the Federal Constitutional Court.

The judges decided that the levying of the solidarity surcharge in 2020 and 2021 – the lawsuit brought before the BFH by a couple from near Aschaffenburg – referred to the two years was “not yet unconstitutional”. Mere doubts were not enough to submit the solidarity surcharge to the Federal Constitutional Court, said presiding judge Thesling.

It is irrelevant whether the supplementary tax is earmarked for the construction of the East. The solidarity contribution is thus independent of the end of the solidarity pact for financing German unity at the end of 2019.

"An additional financial need of the federal government, which results from the completion of a generational task, can also be recognized for a very long period of time," says a statement from the court. In any case, the period has not yet expired 26 or 27 years after its introduction. For example, the legislator has pointed to a continuing need in the area of ​​pension insurance and the labor market.

The aim of the Federal Fiscal Court is that the federal government must continue to prove the financial requirements for the establishment of German unity in the coming years. The judges see this additional need for the years 2020 and 2021 as given, but they basically point out that this cannot be a permanent solution, because then the expenses would have to be covered by a tax and not by a supplementary levy such as the Soli.

While the solidarity surcharge will continue to be levied by companies on corporation tax and on the withholding tax on capital gains, the legal situation for income tax payers changed in 2021. As of the year, the solidarity surcharge for around 90 percent of those who pay wage tax or assessed income tax was completely eliminated due to the increase in the existing exemption limit - at least another group no longer has to pay the full 5.5 percent of the tax liability. In figures: Income earners with taxable income from around 66,000 euros have to pay part of the soli, from around 100,000 euros in full.

This led to the accusation that the soli was a tax on the wealthy, which is why it violated the principle of equality. The BFH judges also see this differently. Only those with higher incomes would be charged. "The inherent unequal treatment is justified," it says. The restriction to the top ten percent of taxpayers is covered by the welfare state principle of the Basic Law.

That cannot be said independently of the question of the extent to which the legislature can prove the need in the next few years. Because even after the current BFH decision, the Federal Constitutional Court will not be able to avoid dealing with the special levy. The judges in Karlsruhe can still come to a different assessment of the possible "unconstitutionality".

Even if the Federal Constitutional Court came to a different assessment than the BFH, it is not certain that taxpayers will get their solidarity payments back from 2020. That would be the extreme case. Likewise, the Constitutional Court can only issue an order to the legislature to put the matter in order by a certain date for the future - this was the case, for example, with the property tax reform, which is currently occupying many property owners.

For the federal government, as the sole beneficiary of the special levy - the federal states and municipalities get nothing from it - it is about a two-digit billion amount per year. Since 2020, the solos have brought in a good 40 billion euros. For this year, the tax estimators are assuming a further 12.5 billion euros, of which an estimated seven billion euros will be attributable to companies.

Supporters and opponents of the solidarity surcharge naturally commented very differently on the decision of the BFH. The CDU warned the federal government against taking this as carte blanche for a looser budgetary policy. "The decision of the Federal Fiscal Court cannot dispel the doubts about the constitutionality of the solidarity surcharge," said parliamentary group leader Mathias Middelberg (CDU). Since the court only declared the solos to be "still" constitutional, it is foreseeable that the entitlement of the solos will expire.

"The plaintiffs now have the opportunity to lodge a constitutional complaint with the Federal Constitutional Court against the BFH decision," Middelberg pointed out. Addressing Federal Finance Minister Christian Lindner (FDP), he said: “Lindner will have to take this into account in its budget planning and should take appropriate precautions. After all, the FDP itself is also suing against the solidarity surcharge.”

The assessment of Achim Post, the deputy parliamentary group leader of the SPD, was completely different. "The Federal Fiscal Court confirmed today that the solidarity surcharge is constitutional in its current form. This is also to be welcomed politically: massive tax relief for higher earners would send the wrong signal, especially in view of the current challenges,” said Post.

The Social Democrats feel encouraged by the decision of the BFH to work on the tax system with a view to other crises. "In the current situation, for example, a one-off crisis levy, which makes particularly high assets share more of the burden of the crisis, can be an instrument for this," said Post.

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