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Unequal Treatment of Marital Spouses and Registered Civil Partners in Real Estate Transfer Tax Law Unconstitutional

Press Release No. 62/2012 of 08 August 2012

Order of 18 July 2012
1 BvL 16/11

Through the enactment of the Annual Tax Act 2010 that entered into effect on 14 December 2010, the legislature provided that registered civil partners be treated equally with marital spouses as far as all the exemptions from real estate transfer tax that apply to marital spouses are concerned. Registered civil partners are two people of the same sex who have registered a civil law partnership pursuant to the Civil Partnership Act (Lebenspartnerschaftsgesetz). However, this revised version of the Real Estate Transfer Tax Act (Grunderwerbsteuergesetz - GrEStG) does not apply retrospectively, but is instead limited to real estate acquisitions made after 13 December 2010. Therefore, the 1997 version of the Real Estate Transfer Tax (GrEStG old), which does not grant registered civil partners - unlike marital spouses - an exemption from real estate transfer tax, apply to all old transfers that were not final and conclusive upon the entry into force of the Civil Partnership Act on 1 August 2001. Pursuant to § 3 no. 4 GrEStG old, which was relevant for the original proceedings, an acquisition of real estate by the marital spouse of the transferor is exempt from real estate transfer tax. In addition, an acquisition of real estate by the transferor's former marital spouse in connection with the division of marital assets following a divorce is also exempt from real estate transfer tax (§ 3 no. 5 GrEStG old). Moreover, § 3 GrEStG old makes provision - mostly for reasons of matrimonial property law - for further exemptions for marital spouses.

The plaintiffs in the original proceedings are registered civil partners. At the time of their separation in 2009, they entered into a settlement agreement. The plaintiffs each had half-shares in two jointly owned properties. Under the settlement agreement, each transferred one of his co-ownership shares to the other so that each became sole owner of one property. Each of them brought an action before the Finance Court (Finanzgericht) against the real estate transfer tax assessed against him. This led the Finance Court to refer the case to the Federal Constitutional Court since it considered § 3 no. 4 GrEStG old unconstitutional on the grounds that it violated the general principle of equality before the law. The First Senate of the Federal Constitutional Court decided that § 3 no. 4 GrEStG old, as well as the other provisions governing exemptions in § 3 GrEStG old, are incompatible with the general principle of equality before the law in Article 3 sec. 1 of the Basic Law (Grundgesetz - GG) to the extent that they do not exempt registered civil partners from real estate transfer tax in the same way as they do marital spouses. The legislature has until 31 December 2012 to amend the law in respect of old cases. The amendment must correct the violations of the principle of equality before the law in the period from the entry into force of the Annual Tax Act 2010 retrospectively back to the inception of the institution of civil partnerships on 1 August 2001.

The Decision is Essentially Based on the Following Considerations:

1. The unequal treatment of marital spouses and registered civil partners in relation to the exemption from real estate transfer tax must be able to withstand measurement against the strict requirements of proportionality in addition to withstanding measurement against the specific tax aspects of the principle of equality before the law, because the differentiation is based on a person's sexual orientation. There are no differences sufficiently important as to justify treating civil partners less favourably than marital spouses under the 1997 version of the Real Estate Transfer Act.

Privileging of marital spouses over civil partners cannot be justified from the point of view of family or succession law. Registered civil partners enjoy equal treatment with marital spouses under family and succession law, and are joined together personally and financially in the same way in a legally formalised partnership of a permanent nature. The legislative assumption underlying tax exemptions is that real estate transfers between marital spouses, as between close relatives who are also exempted from tax, are often made for the purpose of dealing with family-law claims of marital spouses inter se or in anticipation of an inheritance. The same presumption applies to registered civil partners. Furthermore, registered civil partnerships, like marriages, create mutual duties of support and responsibility for one another. Consequently, unequal treatment may also not be justified by reference to a family principle derived from a special legal bond.

Finally, the less favourable treatment of civil partners as compared with marital spouses cannot be justified on the basis of the state's duty to protect and promote marriage and the family, which is anchored in Article 6 sec. 1 of the Basic Law. If the promotion of marriage is accompanied by unfavourable treatment of other ways of life, even where these are comparable to marriage with regard to the life situation provided for and the objectives pursued by the legislation, the mere reference to the requirement of protecting marriage will not justify such a differentiation.

2. There is no reason to release the legislature from its duty to retrospectively correct the unconstitutional legal situation. In particular, no order should be made for the continued application of exemption provisions which have been declared unconstitutional because their constitutionality was not sufficiently clarified prior to their enactment. Such an order, which would be contrary to the fundamental retrospective effect of a declaration of voidness and a declaration of incompatibility with the Basic Law, may only be made in exceptional circumstances and if there is sufficient justification for doing so. However, the Federal Constitutional Court's knowledge alone that a statute violates the provisions of the Basic Law does not in and of itself indicate that the constitutionality of the statute was unclarified in this sense before its enactment, and thus release the legislature from its duty to retrospectively correct unconstitutional circumstances.