Author Wagemann + Partner PartG mbB, Berlin, Patrick Löchel, Steuerberater
Edited By Integra International Grant Gilmour, CPA (Canada, BC) CPA (USA, Arizona)
In Germany, there is a widespread belief among the population that, despite all political assurances to the contrary, a tax once introduced will never be repealed.
A prominent example of this is the so-called “sparkling wine tax”. This has been levied on carbonated wines with an alcohol content for over 120 years. It covers but is not limited to champagne, crémant and sparkling wine in particular.
The tax was introduced 1902 by the German Reichstag (the parliament at that time) in the German Empire under Emperor Wilhelm the II to finance the construction of the imperial navy because “with such a sharp increase in spending on the country’s military strength, sparkling wine must also be called upon.” A 50 Pfennig surcharge was added to the average price of 2.50 Reichsmark per bottle at that time. Sparkling wine was in the time of the Empire a very popular fashion drink. The intention was to involve the upper middle class more in financing armaments expenditure. However, only a very small part of the expenditure could be covered from the proceeds. In 1905, the sparkling wine tax raised 5.5 million Reichsmarks from around 11 million bottles sold. In the same year, armaments expenditures for the German navy amounted to 231 million Reichmarks.
The tax remained in place after the end of World War I and the demise of the fleet and the Empire. It was temporarily reduced to zero by the National Socialists in 1933 to overcome the economic crisis, but was not abolished. In 1939, it was raised again as a wartime surcharge of 3 Reichsmark per bottle to finance the German submarine fleet. It remained after the end of World War II and transferred 1949 to the newly founded state of the Federal Republic of Germany. After the currency reform, it became 3 DM (instead of Reichsmark) per bottle, which made sparkling wine unaffordable for broad sections of the population. As a result, many sparkling wine cellars were threatened with bankruptcy. At this time, the sparkling wine tax continued to be based on the regulations of a war economy ordinance and was not replaced until 1952, 7 years after the end of the war, by a sparkling wine tax law to finance the repair of war damage and the reconstruction of the country. In the process, it became a so-called excise tax of 1 DM per bottle.
The tax also survived the founding of the European Union and the introduction of the single European market and continues to exist today, more than 120 years after its introduction, in the form of the “Sparkling Wine and Intermediate Products Tax Act”, which has been in force since 2009.
When it was introduced, the tax was still levied per bottle and paid by consumers at the time of purchase. Today it is already levied on the manufacturer level by the Federal Customs Administration.
The current tax rates are:
- for less than 6 percent alcohol by volume, 51 €/hl (= 0.38 €/0.75 l),
- from 6 percent alcohol by volume 136 €/hl (= 1.02 €/0.75 l).
The tax rate for sparkling wine (converted into Euro) has doubled since 1952.
Revenue from the sparkling wine tax amounted to around €360 million in both 2020 and 2021. This is the second-lowest figure compared with other excise taxes, putting the sparkling wine tax in second-to-last place in the tax revenue ranking of excise taxes. With such a low tax revenue, it is questionable whether the tax revenue from the sparkling wine tax at least covers the administrative expenses incurred in the process of the tax collection. For this reason, and in view of the fact that German sparkling wine producers feel disadvantaged in international competition due to the continuous levying of the sparkling wine tax, calls for the abolition or at least reduction of the sparkling wine tax are made at irregular intervals. The last petition to abolish the sparkling wine tax was rejected by the German parliament (Bundestag) in 2020.
This example also provides a good illustration of the skepticism of the population mentioned at the beginning when the federal government in Germany wants to impose new temporary levies. In my opinion, another prominent example of this is the so-called solidarity surcharge. It was originally introduced in 1991 for a limited period of one year to finance the additional financial burden of the second Gulf War to cover the German additional expenses of 16.9 billion euros. It consisted of a surcharge of 7.5% of the assessed tax on income and corporation tax. After it was not levied in 1993-1994, it was reintroduced indefinitely in 1995 to finance the costs of German unification. Nevertheless, it was lowered from 7.5% to 5.5% in 1998.
The solidarity surcharge was the subject of criticism for several years because, decades after the German reunification, the reason for levying it virtually disappeared with the expiry of the so-called Solidarity Pact II for the reconstruction of the new federal states. The current Chancellor and former Finance Minister Olaf Scholz had presented a bill to abolish the solidarity surcharge, which eliminated it for 90% of citizens. However, this abolition is more like the introduction of a tax-free allowance. Higher incomes, investors with capital gains and corporations still have to pay it today. Thus, after its partial abolition, tax revenues only fell from around 20 billion euros in 2020 to 11 billion euros in 2021.
Since the solidarity surcharge is no longer levied equally on the population, an action was brought against it before the German Federal Fiscal Court (Bundesfinanzhof). In a controversial ruling in January 2023, the German Federal Fiscal Court ruled in favor of the state and also rejected a referral to the German Federal Constitutional Court on the issue of constitutionality. However, further proceedings on the subject are already pending. It remains to be seen if this will develop into a never-ending story like the sparkling wine tax.
As we all know, it is easier to reduce or increase a tax than to introduce a completely new tax. A complete abolition therefore seems unlikely. It might be possible that it will be reinterpreted and possibly levied more comprehensively again in the near future, for example to cover the costs of the so-called energy turnaround. This is especially true since the solidarity surcharge is a so-called supplementary levy, the revenue from which accrues exclusively to the federal government.