Solidarity surcharge under constitunional scrutiny

The German Federal Constitutional Court today announced its eagerly awaited decision (case no. 2 BvR 1505/20, Press release) on the constitutionality of the solidarity surcharge from the 2020/2021 assessment period. Accordingly, the levying of the solidarity surcharge continues to be constitutional.

The so-called solidarity surcharge 1995 was introduced by the Act on the Implementation of the Federal Consolidation Program of June 23, 1993 (German Federal Law Gazette I 1993, 944) with effect from the 1995 tax year. Since then, the solidarity surcharge 1995 has been levied without interruption as a supplementary tax for an indefinite period at a surcharge rate of 5.5% on the income and corporation tax to be assessed or paid in advance and is also already taken into account as part of the tax deduction (wage tax, capital gains tax, tax deduction for limited taxpayers in accordance with Section 50a of the German Income Tax Act).

The solidarity surcharge 1995 was intended to cover special financial burdens of the federal government following German reunification based on the two Solidarity Pacts I (January 1, 1995 to December 31, 2004) and II (January 1, 2005 to December 31, 2019). With the expiry of Solidarity Pact II, the first step on the way to a later complete dismantling of the solidarity surcharge was decided by the law of December 10, 2019 (German Federal Law Gazette I 2019, 2115) to reduce it for low and middle incomes. To this end, the existing exemption limits were gradually increased with effect from the 2021 tax year and a so-called mitigation zone was introduced. However, taxpayers with higher incomes, capital gains taxpayers and all corporate tax subjects, like corporations, will continue to pay the solidarity surcharge unchanged.

In its ruling of January 17, 2023 (case no. IX R 15/20), the German Federal Fiscal Court declared that the solidarity surcharge in the 2020 and 2021 tax years was “not yet unconstitutional”. In its opinion, the solidarity surcharge had not lost its justification as a supplementary levy with the expiry of the Solidarity Pact II at the end of 2019. An additional financial requirement of the federal government resulting from the management of a so-called generational task could also be recognized for a very long period exceeding 26 or 27 years. Furthermore, the German Federal Fiscal Court did not see any violation of fundamental rights against the partial continued collection of the solidarity surcharge from the 2021 tax year.

The German Federal Constitutional Court decision of March 26, 2025 (case no. 2 BvR 1505/20) is based on the constitutional complaint lodged directly against the continuation of the solidarity surcharge beyond 2019 by several former FDP members of the Lower House of German Parliament. In their opinion, the continued collection of the solidarity surcharge, which was originally based on the costs of reunification, had become unconstitutional when the Solidarity Pact II expired on December 31, 2019. Furthermore, the law on the reduction of the solidarity surcharge 1995 resulted in unequal treatment of different income brackets.

The German Federal Constitutional Court rejected the admissible constitutional complaint as unfounded. In this respect, it agrees with the German Federal Fiscal Court`s 's view that even today it is not (yet) possible to establish that the additional financial requirements of the Federal Government due to reunification, which justifies the levying of a supplementary levy in the form of the solidarity surcharge, have clearly ceased to exist. Time-defined deadlines such as the ‘generation gap’ are just as irrelevant as the expiry of the Solidarity Pact II at the end of 2019, which merely marked the end of the concrete organization of the federal government's support for the so-called new federal states up to that point. However, this does not mean that the federal government will not have to financially compensate the reunification-related needs of the so-called new federal states in the interests of the state as a whole after this date. Consequently, there is no obligation on the part of the legislator to abolish the solidarity surcharge from the 2020 tax year.

According to the German Federal Constitutional Court, the 2020/2021 solidarity surcharge, with its surcharge rate of 5.5 %, neither violates the general principle of proportionality nor is it disproportionate to the amount of the task-related additional requirements that are to be covered by its collection. At EUR 18.7 billion, the revenue from the solidarity surcharge in 2020 was significantly higher than the sum of the unification-related burdens on the federal budget of only around EUR 13 billion. However, the federal legislator reacted to this in accordance with its constitutional duty of observation with the Act on the Reduction of the solidarity surcharge 1995 by no longer levying the solidarity surcharge on all persons subject to income tax and thus significantly reducing the revenue for the years from 2021. As a result, the revenue from the solidarity surcharge in 2021 was only EUR 11 billion. Furthermore, the German Federal Constitutional Court does not consider the German solidarity surcharge Act 1995 to violate the principle of equal treatment.