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The following abstract was prepared by the Federal Constitutional Court and submitted for publication to the CODICES database maintained by the Venice Commission. Abstracts published by the Venice Commission summarise the facts of the case and key legal considerations of the decision. For further information, please consult the CODICES database.
Please cite the abstract as follows:
Abstract of the Federal Constitutional Court’s Order of 30 September 2015, 2 BvR 1066/10 [CODICES]
Abstract
First Chamber of the Second Senate
Order of 30 September 2015
2 BvR 1066/10

Headnotes (non-official):

Article 3.1 of the Basic Law, according to which all persons are equal before the law, does not prohibit the legislator from treating different situations differently. However, differentiations always have to be justified by factual reasons that are appropriate with regard to the objective and the extent of the unequal treatment. Therefore, depending on the subject regulated and the criteria of differentiation, the general principle of equality sets different limits for the legislator in different cases (established case-law).

In tax law, the legislator has a broad leeway in choosing the taxable object and in determining the tax rate (cf. Federal Constitutional Court, 22.06.1995, 2 BvL 37/91, Entscheidungen des Bundesverfassungsgerichts, Official Digest – BVerfGE 93, 121 <136>; but also see BVerfG, 06.03.2002, 2 BvL 17/99, BVerfGE 105, 73 <125>).

In particular, the legislator has a broad leeway to design when tasked with redesigning complex systems of regulation. However, in redesigning the taxation of contributions to pension schemes and of the pension inflow, he is not allowed to exceed the limits drawn by the prohibition of double taxation (cf. BVerfGE 105, 73 <134>).

The rule of law mandates that specific justifications be provided if the legislator retrospectively changes the legal consequences of a past situation by placing an additional burden onto the person liable to pay taxes (cf. BVerfG, 10.03.1971, 2 BvL 3/68, BVerfGE 30, 272 <285>; cf. BVerfGE 105, 17 <37>, as well).

If such legal consequences only take effect after the promulgation of the relevant legal provision, but are triggered by a situation that, with regard to the constituent elements of that provision, already has been set into motion before ("tatbestandliche Rückanknüpfung"), this constitutes de facto retroactivity, which can be permissible under constitutional law (on that point cf. BVerfG, 07.07.2010, 2 BvL 14/02, BVerfGE 127, 1 <17 - 18>).

Summary:

I.
In its judgment of 6 March 2002 (BVerfGE 105, 73), the Second Senate of the Federal Constitutional Court held that the different taxation of pensions of civil servants and those of employees derived from the German statutory pension insurance scheme in 1996 was not compatible with Article 3.1 GG. As a consequence, the legislator adopted a new law, the Retirement Income Act of 5 July 2004, by which the system of taxation was fundamentally changed. According to the new rules, taxation is deferred to the period of pension inflow. Consequently, in a first step, 50 % of the pensions derived from the statutory pension insurance scheme or from comparable occupational pension schemes provided by self-regulatory professional organisations are to be taxed, and later this taxable share will gradually increase to 100 % – to be reached by 2040.

The complainant of proceedings 2 BvR 2683/11 had been employed as an auditor for three years and had also worked as a self-employed auditor. He paid contributions to the German statutory pension insurance scheme; for 17 years, these contributions were higher than the maximum amount to be paid to the statutory pension insurance scheme by an employee. In his income tax declaration for the year 2005, he requested that only the revenue share of his pensions be taxed. The finance courts only granted this request with regard to the revenue share that was above the maximum contributions.

The complainant of proceedings 2 BvR 1066/10 was a civil servant but had previously worked in a position in which he had been liable to pay contributions to the statutory pension insurance scheme and was therefore entitled to continue to pay contributions to that scheme on a voluntary basis, which he did. As a civil servant in retirement, he has been receiving pensions from that work since 2005 as well as a pension under the statutory pension insurance scheme. He requested that only the revenue share of his pension under the statutory pension insurance scheme was to be taxed. However, the tax authorities decided to tax 50 % of the pension derived from the statutory pension insurance scheme. Neither his protest nor his action against this taxation was successful.

In proceedings 2 BvR 1961/10, a couple that had been taxed together in 2005 lodged a constitutional complaint. Due to a prior employment by which the husband, a civil servant, had been liable to pay contributions to the statutory pension insurance scheme, he had been entitled to continue to pay contributions to the statutory pension insurance scheme for medical professions on a voluntary basis, which he did. Until 2004, only the revenue share of 27 % of his pensions under that scheme, which he received in addition to his civil service pension, was subject to taxation. In 2005, the taxable share of the pension under the statutory pension insurance scheme was raised to 50 %. The complainants’ protest and action against such taxation were unsuccessful.

The complainants asserted that Article 3.1 of the Basic Law had been violated.

II.
The Federal Constitutional Court did not admit the constitutional complaints for decision.

That decision is based on the following considerations:

The provisions concerning the taxation of pensions on which the challenged decisions were based do not raise constitutional concerns. They are, in particular, compatible with the constitutional requirement of equal treatment. In realigning taxation by no longer taxing contributions to the statutory pension insurance scheme or related schemes but by applying deferred taxation to the pension inflow according to the Retirement Income Act, the legislator has designed a system that is, in principle, compatible with the principle of equality. By taxing the pension inflow, the legislator also does not exceed the limits drawn by the prohibition of double taxation as long as and to the extent that the contributions to those schemes are exempt from tax.

To the extent that the provision of the third sentence of § 22.1.3.a.aa of the Income Tax Act, which regulates a transitional period, treats pensions of self-employed persons and those of employees equally, although the original situations of self-employed persons and employees differed with regard to the extent to which the individual contributions had been taxed in the past, this is to be tolerated during the transition period. A similar reasoning applies with regard to civil servants and those covered by the statutory pension insurance scheme accordingly. In his regulation of the transition period (taxing 50 % of each pension in 2005 and gradually increasing the taxable share up to 100 % by 2040 regardless of the extent to which the pension scheme contributions had been taxed in each individual case in the past), the legislator stayed within his leeway to design. To determine how the contributions of each person liable to pay taxes had been taxed in the past would not have been compatible with the requirement to create solutions that are easy to handle and to manage due to the enormous amount of proceedings in taxing pensions.

In addition, the provisions of the Retirement Income Act do not result in an impermissible double taxation for the complainants. It does not raise any constitutional concerns to apply the nominal value principle when comparing the contributions to the pension schemes with the pension inflow that is not subject to taxation (cf. already Federal Constitutional Court, 19.12.1978, 1 BvR 335/76, BVerfGE 50, 57 <77 et seq.>).

The provisions of the Retirement Income Act do not violate the principle of legitimate expectations, either. They create “unreal” retroactivity (de facto retroactivity), which, however, does not raise any constitutional concerns. This is the case because the de facto retroactive effect is suitable and necessary to achieve the aim of the Act; it is appropriate as well.

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Additional Information

ECLI:DE:BVerfG:2015:rk20150930.2bvr106610

See also

Please note that only the German version is authoritative. Translations are generally abriged.