Bundesverfassungsgericht

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Decision regarding the judicial review of administrative decisions with regard to lending concrete meaning to undetermined legal terms

Press Release No. 42/2011 of 30 June 2011

Order of 31 May 2011
1 BvR 857/07

The Investment Allowance Act (Investitionszulagengesetz) governs the granting of state aid for commercial acquisitions which are regarded as qualifying for promotion. In particular, manufacturing is and already has been taken into account in the predecessor regulations of the Berlin Aid Act (Berlinhilfegesetz) of 1968, and in the subsequent Investment Allowance Acts, when granting investment allowances.

The provisions of the 1999 Investment Allowance Act which are material here also provide under certain preconditions for the promotion of commercial investments effected in manufacturing. Neither the Berlin Aid Act nor the subsequent Investment Allowance Acts until 2008 define the term "manufacturing" or otherwise determine it in detail. However, it is in compliance with the established case-law of the finance courts for the attribution of the activity of an establishment to manufacturing as a rule to be determined according to the respectively valid version of the National economic activity classification drawn up by the statistical authorities. It was not until the 2010 Investment Allowance Act of 7 December 2008 that it was established for the first time in law that the attribution of an establishment to manufacturing is to be carried out in accordance with the National economic activity classification published by the Federal Statistical Office.

The complainant is an enterprise headquartered in Saxony and processes used asphalt and used concrete, using its machines to crush the material provided by its clients. It applied in 2005 to the tax office for an investment allowance to be granted for the acquisition of various vehicles and machines. In response to its enquiry, the Federal Statistical Office stated, with detailed grounds, that its establishment was not to be attributed to manufacturing, whereupon the tax office refused to grant an investment allowance. The Regional Finance Court (Landesfinanzgericht), by contrast, found in response to the complainant's action that the complainant's activity, in contradistinction to the attribution carried out by the Federal Statistical Office, did fall under manufacturing, thereby quashing the notice of the tax office; the attribution effected by the latter was said to be manifestly incorrect.

The Federal Finance Court (Bundesfinanzhof) quashed the judgment. The complainant's establishment was said not to be attributed to manufacturing. Given the lack of a statutory legal definition, the lists of economic activities published by the Federal Statistical Office were to be consulted to interpret the undetermined legal term "manufacturing". If, therefore, the Federal Statistical Office or the Statistical Office of a Land (state) were to accordingly consider the attribution of an establishment to a specific economic activity to be correct, it was said that this attribution should as a rule, according to the established case-law of the Federal Finance Court, be adopted by the tax offices when deciding on granting the investment allowance where this did not lead to an outcome that was manifestly false. The latter was said not to be the case here.

The First Senate of the Federal Constitutional Court quashed the judgment of the Federal Finance Court and remitted the case to it for a new ruling. The judgment violates the complainant's fundamental right to effective legal protection under Article 19.4 sentence 1 of the Basic Law (Grundgesetz - GG) by virtue of the fact that it only to a restricted extent reviews the lawfulness of the tax office's refusal to grant the investment allowance that had been applied for.

In essence, the decision is based on the following considerations:

The fundamental right to effective legal protection gives rise to a right of the citizen to as effective a judicial review of the impugned sovereign act as possible. The courts are obliged to completely verify the impugned administrative acts in legal and factual terms. This also applies if the impugned administrative decision is based on the application of undefined legal terms. It is essentially the task of the courts to lend concrete form to them.

The Federal Finance Court restricts in its judgment the judicial review of the tax office's decision regarding the rejection of the investment allowance in two respects:

1. Firstly, the Federal Finance Court considers the attribution of the complainant's enterprise to manufacturing as being fundamentally tied to the National economic activity classification, which is neither a statute nor an ordinance, but was created by an administrative authority solely for statistical purposes. This however does not lead to a violation of the guarantee of legal protection. It impairs neither the fact of the courts being bound by the law nor the individual's right to effective judicial review if concrete form is lent to undetermined legal terms through a statutory reference to specific administrative regulations or other sub-legislative sets of rules, or if the consultation of such regulations or sets of rules to lend concrete form is based in a comparable manner on an adequate legal foundation.

This is the case at hand. The recognition of the fundamental binding nature of the National economic activity classification for the attribution of an establishment to manufacturing can, in relation to the granting of an investment allowance, be based on a strong statutory foundation. The legislative materials relating to the 1999 Investment Allowance Act, as well as to the preceding regulations, contain unambiguous documentation indicating that the legislature, when passing the respective Investment Allowance Act, assumed the binding application of the National economic activity classification in rulings on the granting of an investment allowance in the context of the attribution of an establishment to manufacturing. Linking to the law on statistics is also not fundamentally improper. The classifications contained in the law on statistics guarantee to all participants in the investment allowance procedure a much greater degree of legal certainty and clarity than a separate understanding of the legal term "manufacturing", detached from the law on statistics, would be able to. What is more, according to the established case-law of the Federal Finance Court, the breakdown of commercial activities in accordance with the National economic activity classification is subject to a review as to manifest error with regard to whether it leads to an obviously false result with regard to the law on investment allowances.

2. The judgment of the Federal Finance Court however violates the complainant's fundamental right to effective legal protection insofar as it, secondly, counts the statement of the Federal Statistical Office according to which the activity of the complainant does not belong to manufacturing as being fundamentally binding and only examines it as to manifest errors. This reduces the individual legal protection because the complete review of the administrative decision required, in this case the decision of the tax office, does not take place, and instead only a mere review as to manifest error takes place. This grants to the Federal Statistical Office a partial right of final decision as an authority.

Rights of final decision which cannot be reviewed by courts, or only to a restricted degree, regarding rights of an individual may only be granted to the executive power on the basis of a statute. In doing so, even the legislature, if it wishes to withdraw judicial review, must consider that the ultimately binding interpretation of the provision and the review of the application of the law in an individual case is the reserve of the courts as a matter of principle. Even the legislature may not eliminate its effectiveness guaranteed by Article 19.4 by providing for too numerous or excessively broad latitude for assessment for entire fields or indeed areas of law. The release of the application of the law from judicial review always requires sufficiently weighty factual grounds orientated in line with the principle of effective legal protection.

The review carried out by the Federal Finance Court, restricted as it was to a review as to manifest error, is not compatible with the guarantee of legal protection provided by Article 19.4 sentence 1 of the Basic Law because there already is no required statutory basis for this restriction. Neither in the 1999 Investment Allowance Act, nor in the legislative materials, does one find sound indications of the statistical authorities having been involved in the decision on the investment allowance in a manner that would be binding on the finance authorities and finance courts, or indeed a right of final decision to be granted to the tax office itself in this regard.

The inadequate judicial review of the Federal Statistical Office's decision on allocation, and subsequently the review of the tax office's decision by the Federal Finance Court, is also not compensated for by possibilities for legal protection against the statement of the Federal Statistical Office itself. The guarantee of effective legal protection does not rule out stages of the procedure where legal protection is granted in separation. The statement of the Federal Statistical Office is however neither a notice containing a basis for assessment that could be separately challenged in a procedure carried out in stages, nor was the complainant obliged to accept invoking legal protection against the statement that might be forthcoming from the administrative courts because the specialist statement on the part of the statistical authority is not included by law in the procedure on granting an investment allowance.