Financial equalisation comprises cost- bearing rules, distribution of taxing powers, tax sharing and transfers between the federal government, state governments and local governments. The main provisions for this are regulated in the Intergovernmental Fiscal Relations Act (IFRA), currently IFRA 2017 for the period 2017 to 2023. As of the 2024 financial year, the Intergovernmental Fiscal Relations Act (IFRA 2024) has entered into force and regulates the fiscal relation period from 2024 to 2028.
For taxation powers, a distinction is made between exclusive taxes and shared taxes. Before the shared federal taxes are allocated, specific amounts that are stipulated by law are deducted first. The allocation to the individual authorities depends on formulas laid down in the IFRA. For almost all taxes the same standard formula is used.