Definition and legal basis of joint taxes
Joint taxes are a specific category of taxes in German tax law whose revenue belongs jointly to several territorial authorities—the federal government, the states (Länder), and, in certain areas, also the municipalities. They play a central role in Germany’s federal fiscal equalization system and serve to fairly distribute tax revenues among the different levels of government. The legal foundation for joint taxes is found in the German Basic Law (Grundgesetz, GG), in particular Articles 106 and 107.
Constitutional foundations
Article 106 Basic Law
According to Article 106 paragraph 3 GG, the revenues from certain taxes shall accrue jointly to the federal government and the states (joint taxes) and are distributed according to the provisions of a law. The federal legislator determines the exact distribution and collection rights, with participation of the states and municipalities also regulated in detail.
Article 107 Basic Law
Article 107 GG further regulates the distribution of joint taxes. Accordingly, fiscal equalization within the federal territory must be structured in such a way as to maintain uniform living conditions. This means that the revenues from joint taxes are distributed based on population numbers, economic strength, and other equalization mechanisms.
Tax laws and implementing legislation
In addition to the Basic Law, various tax laws—especially the Fiscal Equalization Act (Finanzausgleichsgesetz, FAG) and the Fiscal Code (Abgabenordnung, AO)—lay down specific rules on the collection and distribution of joint taxes. The FAG details the legal allocation criteria, while the AO regulates the technical and organizational aspects of tax collection.
Types of joint taxes in Germany
The following joint taxes currently exist in Germany under applicable law:
Income tax (including wage tax and capital gains tax)
Income tax is one of the most important joint taxes. Its revenue is shared equally between the federal government and the states (§ 1 Fiscal Equalization Act – FAG). Included in income tax are the wage tax (as a method of collecting income tax on earnings from non-self-employment) as well as capital gains tax.
Participation of municipalities in income tax
According to Article 106 paragraph 5 GG, a portion of the income tax revenue is allocated to the municipalities, and the distribution is based on the residence principle. The participation of municipalities in income tax is determined each year by the Fiscal Equalization Act.
Corporate income tax
Corporate income tax is an income tax for legal entities, in particular for corporations. The revenue from this tax—similar to income tax—is divided between the federal government and the states (§ 2 FAG), with municipalities not being directly involved.
Value added tax (VAT)
Value added tax is also considered a joint tax under German tax law. Its revenue is distributed among the federal government, the states, and the municipalities. The precise distribution of VAT revenue is determined by Article 106 paragraph 3 GG and the regulations of the Fiscal Equalization Act.
VAT pre-allocation and equalization
Unlike income and corporate taxes, the distribution of VAT follows a fixed key, which is regularly adjusted by the Fiscal Equalization Act. This especially takes into account that VAT is used to compensate differences in the tax capacity of the states.
Competence to levy and administer joint taxes
Tax collection
The collection of joint taxes is mainly carried out by the state financial authorities on behalf of the federal government (§ 6 AO). In practice, this means that the respective tax office of each federal state collects, manages, and remits the tax to the central treasury.
Federal government’s right to instruct
Although the administration of joint taxes is the responsibility of the states, the federal government has the right to issue instructions in matters concerning the collection and assessment of these taxes (Article 108 paragraph 3 GG). Due to the joint nature of tax revenue, this ensures that uniform federal standards and procedures are observed.
Distribution mechanisms and fiscal equalization
Distribution formula
The formula for distributing joint taxes is prescribed by law and is principally based on the respective shares set out in the Fiscal Equalization Act. The most important parameter for distribution is generally the population; additional equalization mechanisms for financially weaker states are incorporated as part of the fiscal equalization scheme between the states.
Fiscal equalization between states
Fiscal equalization between the states (Article 107 GG) is a fundamental component of the distribution of joint taxes. It provides for balancing between financially strong and financially weak states, whereby surpluses from the revenue of joint taxes can be used for equalization.
Significance of joint taxes in the overall system
Joint taxes are fundamentally important for the financing of the state, especially regarding the revenues of the federal government and the states. Their share of total tax revenue is particularly high—in 2023, the share of joint taxes in Germany’s total tax revenue was over 70 percent.
Purpose and federal equity
The aim of the joint tax system is to ensure an even and sustainable distribution of financial resources. It also promotes solidarity within the federal state and helps maintain equivalent living conditions in all regions of Germany.
Distinction from other types of taxes
Federal taxes
Federal taxes are taxes whose revenue accrues solely to the federal government, such as energy tax, tobacco tax, or insurance tax (Article 106 paragraph 1 GG).
State taxes
State taxes accrue solely to the states. These include, in particular, inheritance tax and real estate transfer tax (Article 106 paragraph 2 GG).
Municipal taxes
Municipal taxes, such as property tax or trade tax, accrue solely to the municipalities and are collected locally.
Special case: church tax
Although church tax is a tax of its own kind, it is not counted among the joint taxes.
European and international references
Although joint taxes are an inherent element of German tax and budget law, there are similar models in other federal or decentralized states. At the European level, there are currently no directly comparable joint taxes; however, harmonized minimum standards—for example in the area of VAT (Umsatzsteuer)—can have an effect at the level of European Community law.
References and further legal provisions
- Basic Law for the Federal Republic of Germany (especially Articles 106, 107, 108)
- Fiscal Equalization Act (FAG)
- Fiscal Code (AO)
- Federal Budget Code (BHO)
- Act on the Distribution of Value Added Tax
Summary
Joint taxes are a central component of the fiscal constitution in German tax law and ensure the joint financing of the federal government, the states, and to some extent the municipalities. The legal basis is the Basic Law, supplemented by specific tax laws such as the Fiscal Equalization Act. Key joint taxes are income tax, corporate income tax, and VAT. As a rule, collection is carried out by the state financial authorities with supervisory and instruction rights of the federal government. Through detailed distribution mechanisms, joint taxes make a significant contribution to achieving equivalent living conditions in Germany.
Note: This entry does not purport to be exhaustive and does not replace advice on specific individual cases but serves as a general legal overview.
Frequently asked questions
What legal foundations regulate the collection and distribution of joint taxes in Germany?
The constitutional basis for the collection and distribution of joint taxes in Germany is, above all, the Basic Law (in particular Article 106 GG). It regulates which taxes qualify as joint taxes and how the revenue from these taxes is distributed among the federal government, states, and municipalities. In addition, the Fiscal Administration Act (FVG) and the Fiscal Equalization Act (FAG) specify further provisions on administration and fiscal equalization. Implementation and execution are carried out by federal and state tax authorities within the framework of the federal fiscal constitution, with administrative agreements between the federal government and the states applying as supplementary provisions.
How is the assessment procedure for joint taxes legally structured?
The assessment procedure for joint taxes is governed in particular by the Fiscal Code (AO), which applies as the general administrative law for taxes under Article 106 GG. The AO regulates all procedural aspects from notification obligations, tax assessment, determination, collection, and enforcement. Additional individual tax laws, such as the Income Tax Act (EStG), the Corporate Income Tax Act (KStG), or the Value Added Tax Act (UStG), specify the different tax situations and special procedures. The General Administrative Procedures Act (VwVfG) may also apply on a subsidiary basis, as far as there are no special legal provisions.
What role do tax offices play in the administration of joint taxes?
Pursuant to Article 108 GG, the administration of joint taxes is, in principle, the responsibility of the state tax authorities acting on behalf of the federal government. The tax offices, as the lowest state financial authorities, carry out the tax procedure, determine the tax bases, assess, and collect the taxes. The tax offices are bound to applicable federal tax regulations and to official instructions from their respective state tax authorities. The calculation of the shares accruing to the respective entitled parties and the onward transfer is carried out in accordance with federal and state regulations under the supervision of the Federal Ministry of Finance.
According to what principles are revenues from joint taxes distributed?
The distribution of revenues from joint taxes is determined by the provisions of Article 106 GG and further by the respective Fiscal Equalization Act (FAG). The percentage allocation is precisely set by law for each joint tax (for instance, wage tax and income tax are split between the federal government and the states; a portion accrues to the municipalities). The FAG regulates not only the distribution but also the national horizontal fiscal equalization among the states and compensation mechanisms for financially weaker municipalities and states (vertical and horizontal fiscal equalization). Special legal disputes regarding the allocation are decided by the Federal Constitutional Court in case of dispute.
What monitoring and legal protection options are available regarding the assessment and distribution of joint taxes?
Taxpayers have access to all legal remedies under the Fiscal Code against administrative acts, in particular against tax assessments (e.g., objection proceedings). In addition, the legal route to the fiscal courts is open under the Fiscal Court Order (FGO), so that after an unsuccessful objection a lawsuit can be filed with the fiscal courts. With respect to the distribution of tax funds between the federal government, states, and municipalities, the participating territorial authorities may file a constitutional complaint or an application to the Federal Constitutional Court, especially if violations of the federal fiscal constitution are claimed.
How do changes in legislation affect the existing distribution and administration of joint taxes?
Substantive changes in law, such as amendments to tax laws or the Fiscal Equalization Act, have direct effects on the tax bases, assessment procedures, and distribution formulae. Such changes require a formal legislative procedure at the federal level and usually the consent of the Bundesrat if they affect the finances of the states or municipalities. Changes may take effect retroactively or prospectively, with retroactivity being limited by the constitutional prohibition on retroactive effect (Article 20 paragraph 3 GG, rule of law principle).
What special legal aspects exist in international matters relating to joint taxes?
In cross-border matters, such as income earned by persons residing abroad or intra-community supplies for VAT purposes, not only German tax law but also international agreements (e.g., double taxation treaties), European legal regulations, and international agreements (such as the EU VAT Directive) must be observed. These regulate, in particular, which state has the right to levy the tax and how the revenues are divided. Disputes in this context are resolved before national courts as well as international bodies (e.g., CJEU) and may influence the interpretation of national regulations on joint taxes.
