Federal Constitutional Court - Press office -
Press release no. 99/2010 of 3 November 2010
Order of 12 October 2010 – 2 BvL 59/06 –
Judicial referral from the Federal Finance Court on "minimum taxation"
under the Tax Relief Act 1999/2000/2002 impermissible
Under § 2.1 of the Income Tax Act (Einkommensteuergesetz – EStG), income
tax is payable only on income which can be assigned to one of the seven
income categories listed there. Under § 2.3 EStG, tax assessment is
based on the "sum of income", that is, positive and negative results
must be set off against each other (same-period loss set-off). Where
negative income exceeds positive income in the relevant assessment
period, the excess losses are deducted in other assessment periods under
§ 10d EStG (cross-period loss set-off).
In the 1990s there was a significant decrease in revenue from assessed
income tax (Einkommensteuer), from DM 41.5 billion in the year 1992 to
DM 11.6 billion in the year 1996 and DM 5.8 billion in the year 1997,
while wage tax (Lohnsteuer) revenue remained virtually unchanged in the
same period (DM 247.3 billion in the year 1992 and DM 248.7 billion in
the year 1997). This was attributed in particular to the use by high
earning taxpayers of tax planning possibilities.
In order to counteract this, the legislature, in the Tax Relief Act
1999/2000/2002, introduced a general restriction on loss set-off with
effect from the 1999 assessment period. This provided that if positive
income exceeded DM 100,000, only half of the excess could be reduced by
set-off against corresponding losses, and therefore at least half of the
amount exceeding DM 100,000 was subject to taxation (known as minimum
taxation). Under § 2.3 EStG new, losses not set off in this way were not
taken into account in the year when they accrued, but – similarly
restricted under § 10d EStG new with the necessary alterations – could
be set off in other assessment periods. However, the loss set-off was
only restricted in the case where the losses had occurred in another
income category than the positive income. Within the same income
category, loss set-off remained possible without restriction. In the
particular case, this resulted in complex calculations involving many
individual steps, some of which were repeated. With effect from the 2004
assessment period, this provision was repealed on the grounds that it
had been found to be cumbersome in practice.
The judicial referral from the Federal Finance Court (Bundesfinanzhof)
relates to the 1999 assessment period, in which the plaintiffs in the
original proceedings – jointly assessed spouses – in the tax assessment
notice last altered during the proceedings for appeal on a point of law
had earned predominantly positive income, mainly from a business
enterprise (§ 15 EStG) in the amount of just under DM 1.8 million. These
were to be set off against losses of the husband from letting and
leasing (§ 21 EStG) in the amount of just under DM 1.3 million; but the
tax office, applying § 2.3 and § 10d EStG as amended by the Tax Relief
Act 1999/2000/2002, recognised only just under DM 1 million of this as
tax-deductible. The action initiated resulted in the judicial referral
by the Federal Finance Court, which regards the provisions on "minimum
taxation" in § 2.3 and § 10d EStG as amended by the Tax Relief Act
1999/2000/2002 as unconstitutional, on the basis that they are complex
and difficult to understand and therefore the legislation is not
well-defined. The Second Senate of the Federal Constitutional Court
holds that the judicial referral is impermissible.
In essence, the decision is based on the following considerations:
A court may only obtain the decision of the Federal Constitutional Court
on the constitutionality of a legislative provision under Article 100.1
of the Basic Law (Grundgesetz – GG) if it has carefully examined this
constitutionality itself. This requires the court to have critically
considered the provision presented for review in detail, to have taken
into account the opinions developed in case-law and literature, and to
have examined different possibilities of interpretation. The various
opinions on the conceivable possibilities of interpretation of
non-constitutional law must be set out with regard to the fact situation
to be decided on, must be discussed and must be constitutionally
assessed. If it is the requirements of sufficient specificity and
clarity of the legislation that are at issue, the referring court must
in particular also show how far a decision in favour of one of the
possibilities of interpretation set out would exceed the duty of the
agencies for the dispensation of justice to clarify uncertainties and to
deal with problems of interpretation with the customary tools of legal
methodology.
The decision of the Federal Finance Court of suspension and judicial
referral does not fulfil these requirements. The non-constitutional
content of § 2.3 and of § 10d EStG as amended by the Tax Relief Act
1999/2000/2002 and the relevant discussions in the literature are not
sufficiently treated.
The order for referral deals in comparative detail with the provisions
restricting individual loss set-off, but without showing that in
themselves they present particular difficulties of understanding.
Insofar as the Federal Finance Court in this connection expressed
objections to individual concepts, these are merely stylistic defects
which do not automatically result in lack of clarity of the content of
these concepts. But with regard to the significant problems of clarity
of the provisions on loss set-off between jointly assessed spouses and
of the references to these provisions in connection with the loss
carry-forward and loss carry-back from other assessment periods, the
order for referral essentially describes aspects of the complexity only
in general and abstract terms. Although the provisions – as is shown by
the discussions in the literature – are accessible to systematic
treatment, there is no attempt to explore their content in concrete
terms. No account is taken of the opinions which regard the provisions
as interpretable in their entirety and therefore as constitutional and
which have also made specific suggestions which may be regarded as
consistent in themselves. Taken as a whole, the order for referral does
not consider the basic arithmetical structure – which can certainly be
determined by way of interpretation – in the necessary manner, although
it is only on this basis that an appropriate review of the problem of
clarity is possible. Admittedly, the order does indicate further aspects
which might be significant with regard to the problems of legislative
clarity when it mentions the complex system of references and the large
number of arithmetical steps to be carried out. But this does not make
up for the lack of systematic treatment of non-constitutional law and
critical examination of the interpretations found in the literature.
This press release is also available in the original german version.
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