The solidarity surcharge remains - the Federal Constitutional Court ruled on 26 March 2025

In its judgement of 26 March 2025, the Second Senate of the Federal Constitutional Court issued a Constitutional complaint of several FDP politicians against the Solidarity Surcharge Act 1995 (SolZG 1995) as unfounded rejected.

Initial situation

The "Soli" was introduced 30 years ago on 1 January 1995 to cover the costs of German reunification. The plaintiffs had argued that these costs had long since been paid and that a supplementary tax such as the "Soli" should not be levied permanently. The Solidarity Pact II to support the new federal states expired in 2019.

Since 2021, due to a high exemption limit, only around Every tenth income taxpayer the supplementary levy, most recently around six million people and around 600,000 Corporations the "Soli". It also applies to Investment income.

If the solidarity surcharge had been retroactively declared unconstitutional, this could have led to repayments of up to 66 billion euros. In addition, it currently generates around 13 billion euros per year for the state.

The judgement

The court states that the solidarity surcharge as a Supplementary levy a task-related additional financial requirements of the federal government which, however, can only be outlined by the legislator in its main features. In the case of the solidarity surcharge, this is the additional financial requirement of the federal government due to reunification. An expert opinion submitted during the proceedings comes to the conclusion that even 30 years after reunification, despite positive developments, structural differences between East and West Germany remain and that there will still be reunification-related burdens on the federal budget in certain areas until 2030.

According to the judgement, a supplementary levy is also not to be limited in time from the outset or only in exceptional situations but should be measured against the additional financial requirements for certain tasks.

The Expiry of the Solidarity Pact II with the end of the year 2019, according to the statements of the court insignificant. This merely brought to an end the specific organisation of the support provided by the federal government to the new federal states up to that point. This does not mean, however, that the federal government does not have to financially compensate for the reunification-related needs of the new federal states in the interests of the state as a whole, namely to create living conditions that are as equal as possible.

The burdens imposed by the "Soli" are also not disproportionate. This also applies to the restriction from 2021 to a small number of income taxpayers with high incomes. The partial repayment corresponds to the repayment of the supplementary levy, with which the federal legislator fulfils its monitoring obligation described below. In addition, this takes into account the ability to pay of income taxpayers and is therefore in line with the Welfare state principle.

The Federal Constitutional Court does not consider the application of the exemption limit only to income tax payers and not to taxpayers who pay corporation tax and capital gains tax to be unequal treatment of the same circumstances.

Valuation

The Federal Constitutional Court gives the federal legislator very broad scope for levying a supplementary levy. When reading the press release, the question arises as to whether in future Other conceivable tasks of the federal government additional levies can be introduced ("climate/refugee/energy/defence/you name it soli"). The wide discretionary scope of the Additional requirementsthe "can only be outlined in outline is", bodes ill for taxpayers.

The Federal Constitutional Court's main argument for the additional financial requirements of the federal government is based on a Expert opinion of the DIW and the ifo Institute. This makes the statements contestable on another level - whether the expert opinion on which the judgement is based was prepared correctly.

In fact, it seems questionable that, in application of the welfare state principle, stronger shoulders should bear more of the burden of income tax, but that this is not the case with the Corporate income tax and capital gains tax the Performance principle does not play a role seems to play a role. There are more or less successful entrepreneurs or pensioners with small incomes and low investment income, for example, who have to pay the full "solidarity surcharge" on these.

Outlook

The court gave the federal legislator a Obligation to observe with. Accordingly, an evident discontinuation of the additional requirement justifies an obligation on the part of the legislator to abolish the levy or adjust its conditions. The expert opinion cited concludes that there will be an additional requirement at least until 2030. Surprisingly, the calculated annual additional requirement corresponds to the revenue from the solidarity surcharge of 13 billion euros.

Irrespective of the current judgement, the political question of the high tax burden in Germany. During the election campaign, the CDU/CSU had called for the abolition of the solidarity surcharge. This is currently proving difficult in the coalition negotiations with the SPD.

Markus Schenk is a succession expert at TAXGATE, a tax law firm specialising in transactions, investments and tax compliance.