Federal Constitutional Court - Press office -
Press release no. 32/2008 of 14 March 2008
Order of 13 February 2008 – 2 BvL 1/06 –
The deduction of special expenses for health insurance contributions
must take account of the expenditure of the taxable person essential to
maintain a minimum standard of living
According to § 10.1 no. 2 letter a in conjunction with § 10.3 of the
Income Tax Act (Einkommensteuergesetz – EStG) in the version applicable
to the year under dispute (1997), the possibility of a deduction of
special expenses for contributions to private health insurance is
restricted as to its amount. The Federal Finance Court (Bundesfinanzhof)
considers this restriction to be unconstitutional because the statutory
maximum amounts do not enable taxable persons to acquire a suitable
amount of health insurance protection. For this reason, it submitted the
question to the Federal Constitutional Court. The submission is based on
the case of a freelance lawyer and his non-working wife who are the
parents of six children. All family members were in private health and
long-term care insurance in 1997. The contributions amounted to DM
36,032.47. In their 1997 income tax declaration they claimed provident
expenses totalling roughly DM 66,000, including the above health and
long-term care insurance contributions. The total amount permitted for
deduction by the finance office, referring to § 10.3 EStG, was however
only DM 19,830.
The Second Senate of the Federal Constitutional Court found that § 10.1
no. 2 letter a in conjunction with § 10.3 EStG, as well as all
subsequent versions, are incompatible with the Basic Law (Grundgesetz –
GG) insofar as the deduction of special expenses does not sufficiently
cover the contributions to private health insurance and private
long-term care insurance which are necessary in terms of their quantity
in order to guarantee to the taxable person and his or her family health
services and long-term care at a level equivalent to social assistance.
The legislature is obliged to create a new provision with effect as per
1 January 2010 at the latest. The income-tax law provisions in question,
as well as the subsequent provisions, remain applicable until this time.
In essence, the ruling is based on the following considerations:
I. § 10.1 no. 2 letter a in conjunction with § 10.3 EStG in the
version applicable for the assessment period 1997 does not violate
the general principle of equality with regard to the fact that the
advance deduction which is granted to the self-employed for their
contributions to private health and long-term care insurance is less
than the corresponding amounts of the employer’s provident payments
for employees (in particular employer contributions to social
insurance) in accordance with § 3 no. 62 sentence 1 EStG .
The contributions made by members of statutory health insurance
serve not only to insure against their own risk of illness, but at
the same time serve the purpose of social equalisation and
redistribution. In addition to decoupling the amount of
contributions from the insured illness risk, the level of benefits
is also largely independent of the amount of the contributions paid.
The assessment of the contributions to private health insurance is,
by contrast, in line with the insured risk. One may hence presume in
private health insurance contributions that a higher contribution
entails a greater advantage for the contributor. Against the
background of these major differences in the system, the legislature
has not overstepped its margin of appreciation on determining the
amount of advance deduction on the one hand and the structure of the
reduction regulation for employees subject to obligatory social
insurance on the other. In terms of its amount, advance deduction
grants an incomplete, but nonetheless tangible reduction in the
burden on health and long-term care insurance contributions of
taxable persons, and hence takes account of the need for
compensation in a manner which is evidently not arbitrary.
II. The provision contained in § 10.1 no. 2 letter a in conjunction with
§ 10.3 EStG in the version applicable to the assessment period 1997
is however incompatible with the Basic Law insofar as the
contributions to private health insurance and private long-term care
insurance are not adequately covered which are necessary as to their
scope in order to guarantee to the taxable person and his or her
family healthcare and long-term care at a level equivalent to social
assistance. This also applies to the subsequent versions of the
statute.
1. In accordance with the principle of a tax-free minimum income,
the state is to exempt the income of a citizen from tax insofar
as the latter needs it to create the minimum preconditions of a
dignified existence for themselves and their family. Protection
of a standard of living at social-assistance level is guaranteed.
The principle of the tax exemption of a minimum income protects
not only what is called the material minimum income (e.g.
expenditure for food, clothing, household goods, home and
heating). Contributions to private insurance for the case of
illness and need of long-term care may also be elements of a
minimum income to be taken into consideration in terms of income
tax, given that healthcare and long-term care are also an
integral element of the list of social assistance benefits.
2. It cannot be ascertained that § 10.1 no. 2 letter a, in
conjunction with § 10.3 EStG, provides quantitatively sufficient
fiscal exemption of the contributions to private health and
long-term care insurance required to ensure a minimum income.
If – in the context of a review of evident errors – one looks at
the example of the contributions paid by the plaintiffs of the
original proceedings, it is revealed that there is evidently no
guarantee of their fiscal burden being sufficiently reduced.
As regards the goal of a realistic exemption of a minimum income
set out in § 10.1 no. 2 letter a EStG, the legislature has not
logically implemented the fundamental decision on reducing
burdens in the maximums of § 10.3 of the Income Tax Act for
health insurance. The legislature handing down the fiscal
legislation is not constitutionally obliged always to fully take
account of contributions to “normal” private health insurance.
Rather, only the expenditure necessary to attain a standard of
living that is in line with social assistance must be considered.
The legislature may hence indicate to those with private
insurance that a part of their contributions is not taken into
consideration in terms of income tax insofar as, in its
estimation, the level of services provided by private health
insurance is customarily above the level of social assistance,
which in turn is coupled to the level of statutory health
insurance. The legislature has however evidently not taken a
decision which is borne by such considerations and orientated in
line with corresponding assessments. The same lack of logical
orientation is also to be ascertained with regard to the
contributions to private obligatory long-term care insurance.
Finally, the same also applies to the children’s health insurance
since no reduction of their burden whatever is provided in § 10
EStG.
The maximum amounts stipulated in § 10.3 EStG for contributions
to private health and long-term care insurance are also not
justified for legitimate considerations of a legislative
definition of typical facts in bulk proceedings. The legislature
has not yet made a decision concerning such definition which
comprehensibly links to the health and long-term care insurance
expenditure of taxable persons necessary to maintain a minimum
standard of living.
3. In reforming the deduction of special expenditure, the
legislature must make it clear which share of a maximum amount is
exclusively or primarily available for health and long-term care
contributions necessary to maintain a minimum standard of living.
It must also adhere to the requirements as to logical exemption
under fiscal law of the minimum income of taxable persons with
statutory health and long-term care insurance, and in doing so
must accommodate the degree to which the level of benefits of
these branches of social insurance is approximated to that of
social assistance or of basic security benefits for job-seekers.
(see Press release no. 33 of 14 March 2008 on the deduction of special
expenses for contributions to professional pension facilities for the
assessment periods prior to 2005)
This press release is also available in the original german version.
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