The term “taxable subject” is synonymous with “tax debtor” and “taxpayer.”
1.4.3.2Subject of taxation and/or taxable object
The subject of taxation and the taxable object are used synonymously and can be used to describe a thing, an action or a sum of money. The existence of the subject of taxation and/or the taxable object constitutes the tax liability. For example, the personal income tax and/or the corporate income tax are based on the income earned. An economic asset (e.g. real property, business establishment, motor vehicle) or an economic event (e.g. turnover) can be the connecting factor for taxation.
1.4.3.3Tax base
The tax base provides information on the extent to which a subject of taxation is subjected to taxation. It is the quantified object of taxation. The assessment basis is often expressed in money (e.g. income). It can, however, also be a technical and/or physical magnitude, such as cubic capacity (e.g. motor vehicle tax – KfzSt) or liters of fluid (e.g. MinöSt).
1.4.3.4Tax threshold, tax allowance, deductible amount
A tax threshold is the part of the assessment basis up to the maximum value of which taxes are not levied. If the tax threshold is exceeded, the entire assessment basis shall be subjected to taxation. The tax threshold on private sales transactions of € 600 in accordance with Sec. 23 (3) sent. 5 of the German Income Tax Act (Einkommensteuergesetz – EStG) is the classic example. The intended purpose of the tax threshold is to relieve the tax administration which should not be bothered with insignificant amounts.
A tax allowance remains tax free regardless of the amount forming the assessment basis. It is an amount that can be deducted in the calculation of the tax base, but which is generally only granted to the extent that it does not cause the assessment basis to be below zero. An example is the basis tax allowance of € 9,000 in accordance with Sec. 32a (1) sent. 2 no. 1 EStG that exempts the taxpayer’s subsistence level from taxation. On account of the progressive character of personal income tax, tax allowances benefit taxpayers with high income more than taxpayers with low income because, when earning a higher income, the resulting reduction of the assessment basis and the tax rate is larger than it is when less income is earned.
A deductible amount is not deducted from the assessment basis but rather directly from the tax debt. In doing so, it directly reduces the amount of taxes to be paid. While the tax allowance leads to more relief in a progressive tax scale with an increasing assessment basis, the deductible amounts provide relief to all taxpayers to the same degree and are thus perceived as more just. An example for a deductible amount is the deduction of donations to political parties by natural persons amounting to 50 % of the expenditures, at most € 825 (cf. Sec. 34g sent. 1 no. 1 and sent. 2 EStG).
Note
A tax threshold is the part of the assessment basis, up to the maximum value of which taxes are not levied.
A tax allowance is the part of the assessment basis that is exempted from taxation.
A deductible amount is deducted from the taxpayer’s tax debt.
1.4.3.5Tax rate and tax scale
The tax rate indicates what percent of the assessment basis or what absolute amount of money per unit of the assessment basis is levied as taxes by the fiscal authorities. The term tax scale is used if the tax rate is not constant for the entire assessment basis. Thus, a tax scale consists of a sequence of tax rates.
Tax scales can be simple tax scales (dependent on only one variable, e.g. the personal income tax scale, which is only dependent on the amount of taxable income) or combined scales (dependent on more than one variable, e.g. the inheritance tax scale, which is dependent on the amount of the inheritance as well as the degree of relationship). The scales of personal taxes are usually constructed progressively, i.e. the tax rate and the resulting average tax burden increase with the assessment basis.
The basic tax rate is the tax rate that must be paid for the first Euro of the taxpayer’s assessment basis.
On the other hand, the top tax rate is the highest tax rate provided for in a tax scale (= maximum marginal tax rate).
The average tax rate results from the amount of taxes to be paid divided by the respective assessment basis. If the tax rate is expressed as a percentage, the result is to be multiplied by a factor of 100.
The marginal tax rate or the marginal rate of tax is the tax rate at which the last (highest) unit of the assessment basis achieved is taxed. The marginal tax rate results from the first derivative of the tax function.
The differential tax rate is the average tax rate levied on an additional part of the assessment basis (Bz). If the taxes on the assessment basis including Bz are depicted as Sz and as S for the taxes without this part of the assessment basis, the differential tax rate is calculated as (Sz – S)/Bz.
The scale can be designed as a calculation scale or as a threshold scale (graduated scale). In the calculation scale, the rate that applies to the last unit of taxation shall apply to the entire assessment basis. In the case of the threshold scale or graduated scale, the assessment basis is broken down into portions, to which a certain tax rate is then applied respectively. The personal income tax scale in Germany is designed as a threshold scale. In 2018 the following scale applies:
| •From € 0 to € 9,000: | Basis tax allowance; not subject to taxation (cf. Sec. 32a (1) sent. 2 no. 1 EStG) |
| •From € 9,001 to € 13,996: | Transition to linear-progressive development. The marginal tax rate increases from a basic tax rate of 14 % to 23.87 % (cf. Sec. 32a (1) sent. 2 no. 2 EStG). |
| •From € 13,997 to € 54,949: | Linear-progressive development with a quick increase in the marginal tax rate up to 42 % (cf. Sec. 32a (1) sent. 2 no. 3 EStG). |
| •From € 54,950 to € 260,532: | Proportional development with a marginal tax rate of 42 % (cf. Sec. 32a (1) sent. 2 no. 4EStG). |
| •Above € 260,533: | Proportional development with a top tax rate of 45 % (cf. Sec. 32a (1) sent. 2 no. 5 EStG), so-called wealth tax (Reichensteuer). |
