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Unformatted text preview: the commonly
shared taxes (see chart 1). 3.2. In Detail: The Distribution of the Turnover Tax (Value Added Tax, VAT)
Concerning the commonly shared taxes it should be noted that the participation quota concerning the revenue from
income tax and corporation income tax is laid down in the constitution itself, whereas the participation quota concerning
the revenue from turnover tax among the confederation, the states, and municipalities is merely governed by federal law
which is passed with the approval of the Senate of the Federal Parliament (the Bundesrat). The distribution of turnover
tax is the flexible element in vertical financial equalization to account for shifts in the financial demands of the
confederation and the states and to adjust them. Such shifts can occur in particular due to a changed pattern of
expenditure - because expenditures or the federal law have actually changed - or because there has been a change in
the amount of public revenue from federal, state or local taxes.
For the statutory determination of the quota of the turnover tax the constitution has laid down the following basic rules:
♦ There is a uniform claim by the confederation and the states to have their necessary expenditure covered within the scope
of their regular income items. According to the constitution all earnings and expenditure coming from the municipalities are
to be added to the states’ financial volume. ♦ The confederation’s and states’ requirements for financial cover are to be tuned in such a way that there is a fair balance
which avoids an overload for the taxpayer but which at the same time safeguards equal living conditions throughout
Germany. In practice these basic rules create some considerable problems; some of the details are discussed controversially
among the confederation and the states. In one way this has to do with the scope of the regular income items: how is the
financial share from the confederation paid to finance the joint tasks to be dealt with? How shall they deal with the
earnings which have to go to the EU or the proceeds to the confederation from the German Central Bank?
The scope of the necessary expenditure is also contested: are the estimated budgets (and the budgetary planning,
respectively) of the two government levels to be taken into account as they are or should they be modified?
During the several annual negotiations attended by the confederation and the states concerning the distribution of
turnover tax these above-mentioned criteria play an important role, but ultimately the questions they imply are not really
settled - they are resolved with a political compromise between the premiers of the confederation and the states. In
conclusion it should be pointed out that the constitution stipulates a redetermination of the quota according to which
turnover tax is shared if the ratio between the confederation’s and states’ earnings and expenditure follow a significantly
different course or if a limited fixing of the quota has expired.
As difficult and contested the regulations co...
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