Federal Constitutional Court - Press office -
Press release no. 61/2008 of 4 June 2008
Order of 17 April 2008 – 2 BvL 4/05 –
Exemption from inheritance and gift tax to also provisionally apply to
donations to municipal voters' associations
§ 13.1 no. 18 of the Inheritance and Gift Tax Act (Erbschaftsteuer- und
Schenkungsteuergesetz - ErbStG) violates the right to equality of
opportunity in so far as donations to political parties are tax exempt
but donations to municipal voters' associations and their umbrella
organisations are not. There are no tenable reasons under
constitutional law to justify the distinction being made. Despite §
13.1 no. 18 ErbStG being incompatible with the Basic Law (Grundgesetz -
GG), it is necessary, however, by way of exception to order that this
provision continue to apply until the legislature has amended the law
and to extend the tax exemption to include municipal voters'
associations and their umbrella organisations. The Second Senate of the
Federal Constitutional Court reached this decision based on a
submission by the Finance Court of Hesse (Hessisches Finanzgericht).
The decision also gave occasion to clarify the admissibility
requirements for judicial referrals concerning tax exemptions, tax
relief and other tax benefits.
The Financial Court's decision to make a submission was based on the
case of a municipal voters' association which refused to pay gift tax
amounting to DM 400 after receiving a donation of DM 5,000.
In essence, the decision is based on the following considerations:
I. § 13.1 no. 18 ErbStG is relevant to the decision in the case
before the Finance Court of Hesse, since the outcome of the case
is dependent on the validity of the provision.
Where a court obtains a decision from the Federal Constitutional
Court in accordance with Article 100.1 GG because it is convinced
of the unconstitutionality of a statutory tax provision which
benefits only certain persons or groups, the assumption must be
made that the provision is of relevance to the outcome of the
original proceedings, so long as the legislature is not prevented
on legal grounds or manifest grounds in fact from establishing a
provision which favours the plaintiff in the original proceedings.
Accordingly, the conditions for a submission to the Federal
Constitutional Court are met in the present case. The legislature
is prevented neither on legal grounds nor on other grounds from
exempting municipal voters' associations and their umbrella
organisations from inheritance and gift tax in the same way as
political parties.
II. Treating political parties and municipal voters' associations
differently on account of § 13.1 no. 18 ErbStG alters the
competitive situation between political parties and municipal
voters' associations in a manner which is of serious consequence.
On account of the tax exemption under § 13.1 no. 18 ErbStG,
political parties are able to utilise the full amount of their
donations for their political work. The funds available to voters'
associations to finance their political work in the municipalities
are, by contrast, reduced by the amount of the inheritance and
gift tax they are liable to pay. Donations in excess of the
tax-free allowance (currently EUR 5,200) are usually taxed at a
rate of 17 per cent. In addition, donations from one donor
received within a period of 10 years are added together. As a
result, regular annual donations of a little more than EUR 500 are
liable to tax.
§ 30 ErbStG is also of relevance as regards the restriction of
competition. According to this provision, the tax authorities must
be notified both by the beneficiary as well as by the donor of
each acquisition which is subject to inheritance tax. Whilst the
predominant opinion in the literature is that no duty of
notification exists when it comes to donations to political
parties, that duty does apply to donations made to voters'
associations. The duty of notification also applies where it is
possible that, when added together over a period of 10 years, the
donations might exceed the tax-free allowance. This gives rise to
a not inconsiderable amount of administrative effort.
A restraint of competition results from the fact that the donor is
at least subsidiarily liable for any gift tax that may be payable
and that the duty of notification also extends to those donors who
donate moderate amounts to municipal voters' associations over a
period of several years. In that respect one must also bear in
mind that the amount of the donations made to voters' associations
is considerably lower than is the case for political parties.
III. There are no tenable reasons under constitutional law for
differentiating between political parties on the one hand and
municipal voters' associations and their umbrella associations on
the other. The different tasks, areas of activity and financial
requirements of parties and municipal voters' associations do not
justify their being treated differently for tax purposes.
Different treatment would only be justified if it were possible to
establish that political parties have specific financial
requirements which are not covered by other statutory regulations
on funding and if the objective of the provision set out in § 13.1
no. 18 ErbStG was to compensate for these special financial
requirements. This is, however, not the case. The special
additional funding required by political parties on account of
their tasks is not covered by exempting donations and other
contributions under the law on inheritance and gift tax, but
rather as part of state party financing.
Also, the objective of the tax exemption under § 13.1 no. 18
ErbStG is not to compensate the special additional financial
burdens which result from the supra-local activities of political
parties. The provision exempts generous donations to parties from
inheritance and gift tax irrespective of whether the money is
required or used for supra-local tasks. The tax benefit afforded
political parties neither ties in to specific financial burdens on
account of their supra-regional tasks, nor is a link recognisable
or intended between the amount of the possible expenses and the
amount of the tax saved.
Likewise, the special obligations imposed on political parties as
regards the origin and utilisation of their funds and assets do
not justify their being treated differently. It is neither
recognisable that the lack of corresponding regulations applying
to municipal voters' associations has led to considerable
financial advantages, nor is the objective of § 13.1 no. 18 ErbStG
to compensate for the different obligations as regards the
rendering of accounts.
IV. Despite the incompatibility of § 13.1 no. 18 ErbStG with the Basic
Law, it is necessary, by way of exception, to order that the
provision continue to apply for a transitional period and to
extend the tax exemption to include voters' associations. Were it
no longer possible to apply § 13.1 no. 18 ErbStG - as a
consequence of its being declared incompatible with the Basic Law
- this would lead to considerable disadvantages for political
parties, which have up until now been favoured. This would be
disproportionate given the fact that it is not to be expected that
the tax exemption for political parties will be abolished. Another
argument in favour of extending the provision to cover municipal
voters' associations and their umbrella associations for a
transitional period is that the shortfall in tax revenue will
probably not be very large.
This press release is also available in the original german version.
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