Federal Constitutional Court - Press Department -
Press release no. 103/2008 of 9. December 2008
Judgment of 9. December 2008
– 2 BvL 1/07, 2 BvL 2/07, 2 BvL 1/08, 2 BvL 2/08 –
Amended statutory regulations on the "commuter tax allowance"
unconstitutional
Until 2006, the costs for travelling between home and workplace could
be deducted from income liable to income tax as income-related expenses
pursuant to § 9 of the Income Tax Act (Einkommensteuergesetz - EStG) or
as business expenses pursuant to § 4 EStG. As a general rule, the
deduction took the shape of a flat rate per working day and kilometre
travelled to the amount of EUR 0.30 immediately before its abolition
(mileage allowance, commuter tax allowance); the allowance was
independent of the cost actually incurred. With effect from 2007, the
legislature provided in § 9.2 sentences 1 and 2 EStG (and
correspondingly in § 4.5a EStG) that the expenses incurred for
travelling to one's regular workplace are no income-related expenses
(sentence 1), but that "to cover increased expenditure", a flat rate of
EUR 0.30 was to be allowed "like work-related expenses" for journeys
from the 21st kilometre travelled (sentence 2). In the legislative
procedure, the fact that the amendment of sentence 1 was tantamount to
the introduction of what is known as the "factory gate principle" was
justified by putting forward the objective of a necessary consolidation
of the excessively indebted state budget (through expected increases in
revenue of approximately EUR 2.53 billion); the remaining deductibility
of longer distances travelled was justified by referring to it as a
complementary hardship arrangement.
As regards the submissions made by the Finance Courts (Finanzgerichte)
of Lower Saxony and the Saarland and by the Federal Finance Court
(Bundesfinanzhof), the Second Senate of the Federal Constitutional
Court ruled that for lack of a reasoning which is viable under
constitutional law, these amended statutory regulations are not
compatible with the requirements placed by the general principle of
equality under Article 3.1 of the Basic Law (Grundgesetz - GG) on a
consistent structure of decisions that concern income tax burdens, and
that they are hence unconstitutional. Accordingly, the legislature is
obliged to retroactively eliminate the unconstitutionality from 1
January 2007 by reorganising the legal situation. Until a new statutory
regulation is adopted, the flat rate under § 9.2 sentence 2 of the EStG
is to be applied - provisionally - without restricting its application
to the 21st kilometre and above of distances travelled.
The decision is essentially based on the following considerations:
1. When determining income tax, the legislature is required by the
Basic Law's general principle of equality to lend its decisions
concerning income tax burdens a sufficiently consistent structure
which is orientated towards the taxpayer's ability to pay. According
to the valid income tax law, the taxpayer's ability to pay is
determined, in principle, according to his or her annual net income,
i.e. according to the amount of income less expenses accruing as
work-related expenses or business expenses (this is known as the
objective net principle), and less further expenses accruing for
private reasons, in particular less the expenses for the taxpayer's
minimum income, and that of his or her family members entitled to
maintenance (this is known as the subjective net principle). What is
decisive for the tax-reducing deductibility of expenses is therefore
in principle the respective context in which they accrue.
The introduction of the "factory gate principle", which stipulates
that what is decisive for the deductibility or non-deductibility of
expenses are not the work-related or private reasons for which they
accrue but exclusively the spatial distance of a journey to the
workplace that causes costs, constitutes a singular exception within
the valid income tax law. It is to be examined against the standard
of whether the structure of a measure of taxation is consistent, and
whether it is orientated towards the principle of ability to pay.
The requirement of a consistent structure of decisions that concern
income tax burdens demands that exceptions from the principles that
govern the valid non-constitutional law be sufficiently
substantiated. According to the Federal Constitutional Court's
established case-law, such sufficient reasons are non-fiscal
objectives of promotion and control and requirements in connection
with the necessity of defining typical facts and with the purpose of
simplification; this, however, does not include the purely fiscal
objective of increasing state revenue. This line of argument is
upheld by the Second Senate in the case at hand.
Accordingly, the new statutory regulation lacks a sufficient factual
substantiation of its departing from the principle of the reason for
the accrual of expenses when the basis of assessment is delimited
under income tax law (2.). The legislature is also not released from
the requirements placed on consistency under income-tax law in view
of the possibilities of introducing a "change of system" that is in
conformity with the constitution or in view of the possibilities of
a new "assignment decision" (3.).
2. In spite of its urgency also under constitutional law, the objective
of budget consolidation, which was almost the only argument advanced
in the legislative procedure, cannot by itself justify the new
statutory regulation because what the delimitation of the tax
assessment basis is about is the equitable distribution of tax
burdens. The increase of state revenue cannot, however, provide a
standard for this because any increase of the tax burden, even an
arbitrary one, will serve this objective.
Pursuant to the Federal Constitutional Court's case-law, objectives
of promotion and control are only suitable as a reason for
justifying a tax burden if they are motivated by recognisable
decisions to this effect taken by the legislature. It is true that
an abolition of the "commuter tax allowance" is demanded by renowned
economists and specialists in public-sector economics in the
interest of providing the taxpayers with tax incentives for a
behaviour which is efficient for the economy as a whole. According
to the reference materials submitted in the legislative procedure,
the legislature has, however, not made this objective its own at any
time, so that such a justification is ruled out for this reason
already.
Also purposes of defining typical facts and of simplification do not
provide a viable justification. Admittedly, it is constitutionally
unobjectionable that the legislature proceeded on the assumption
that the travel expenses in question accrue for "mixed" reasons,
i.e. for reasons that are private as well as work-related, and that
considerable latitude exists for defining typical facts and for
simplification in the interest of the adequate assessment and
classification of such expenses under income-tax law. The new
statutory regulation, however, is not an assessment and
classification, for which typical facts are defined, of the
different weight of the private and the work-related components
which give rise to the expenses; instead, it is a delimitation of
constituent elements which is orientated exclusively, and in a
purely quantitative manner, towards the desired result, i.e. towards
an increased tax revenue. As the amount of the general wage or
salary earner's standard allowance has not been harmonised
correspondingly, the additional burden caused by travel expenses for
distances of up to 20 kilometres cannot be "defined away" by making
reference to this general standard allowance.
3. Finally, what is also lacking is a fundamental system change or a
decision concerning a new assignment, which would "release" the
legislature. It is true that constitutionally, the latitude which is
due to the legislature when drafting tax law also comprises the
authorisation to introduce new rules without being bound by
principles of consistency to previous fundamental decisions. A
permissible system change, however, cannot be implemented without a
minimum orientation towards a new system. If this were otherwise,
each and every statutory exemption could be declared (the beginning
of) a new concept. The new provisions concerning the spatial
delimitation of deductible travel expenses do not show an
orientation towards a new fundamental concept, which might, for
instance, be realised step by step. The general exclusion of travel
expenses from the element of work-related expenses while providing
that the costs for distances from 21 kilometres onwards be treated
"like" work-related expenses and assessing a mileage allowance for
it which is unrelated to expenditure actually incurred is
characterised by a contradictory connection and interlinking of
different regulatory contents and objectives and is not based on a
comprehensive concept: In particular, virtually upholding the
previous legal situation for distances of 21 kilometres and above
cannot be justified as a hardship arrangement for lack of plausible
hardship criteria, and, as was the case for the previous
unrestricted mileage allowance as well, the flat rate which is
independent of expenditure actually incurred has the effect of a
subsidy of transport policy and environmental policy objectives in
cases in which a low expenditure, or none at all, is incurred
because cost-free or low-cost possibilities of transport are
available. Using the flat rate as a hardship arrangement is,
however, opposed to these objectives because it rewards in
particular the choice and upholding of longer travelling distances,
and thus a decision in favour of a behaviour which is less desirable
under transport policy and environmental policy aspects, whereas the
decision in favour of living near one's "factory gate" results in
disadvantages which are contrary to these objectives.
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