Federal Constitutional Court to Rule on Solidarity Surcharge in March

The ongoing debate surrounding the solidarity surcharge in Germany is set to reach a critical juncture as the Federal Constitutional Court prepares to announce its ruling on March 26. This decision follows a constitutional complaint filed by six members of the Free Democratic Party (FDP), who argue that the surcharge has become unconstitutional since the conclusion of the Solidarity Pact II at the end of 2019.

The FDP politicians contend that the original justification for the solidarity surcharge, which was established to help finance the reunification of Germany, is no longer valid. They assert that the current structure results in unequal treatment of individuals with different income levels. The court's deliberations on this matter took place in November, with the case being referenced as Az. 2 BvR 1505/20.

The solidarity surcharge, commonly known as 'Soli,' is an additional charge levied on income, corporate taxes, and capital gains, amounting to 5.5% of the respective tax obligations. Since the beginning of 2021, only high earners, corporations, and investors are required to pay this surcharge, while it has been eliminated for approximately 90% of taxpayers under the 'Law for the Reduction of the Solidarity Surcharge 1995.'

If the court finds the surcharge unconstitutional, it could pose significant challenges for the next German government. The current budget drafts for this year anticipate revenue from the solidarity surcharge amounting to EUR12.75 billion, which could be lost should the ruling favor the FDP's complaint. Additionally, a ruling against the surcharge could lead to potential repayment claims, as the court might require the government to return approximately EUR65 billion collected since 2020.

The outcome of this case will not only impact fiscal policy but also shape the future political landscape in Germany as parties grapple with the implications of such a significant financial shift.