Federal Constitutional Court - Press office -
Press release no. 42/2011 of 30 June 2011
Order of 31 May 2011 – 1 BvR 857/07 –
Decision regarding the judicial review of administrative decisions with
regard to lending concrete meaning to undetermined legal terms
The Investment Allowance Act (Investitionszulagengesetz) governs the
granting of state aid for commercial acquisitions which are regarded as
qualifying for promotion. In particular, manufacturing is and already
has been taken into account in the predecessor regulations of the Berlin
Aid Act (Berlinhilfegesetz) of 1968, and in the subsequent Investment
Allowance Acts, when granting investment allowances.
The provisions of the 1999 Investment Allowance Act which are material
here also provide under certain preconditions for the promotion of
commercial investments effected in manufacturing. Neither the Berlin Aid
Act nor the subsequent Investment Allowance Acts until 2008 define the
term “manufacturing” or otherwise determine it in detail. However, it is
in compliance with the established case-law of the finance courts for
the attribution of the activity of an establishment to manufacturing as
a rule to be determined according to the respectively valid version of
the National economic activity classification drawn up by the
statistical authorities. It was not until the 2010 Investment Allowance
Act of 7 December 2008 that it was established for the first time in law
that the attribution of an establishment to manufacturing is to be
carried out in accordance with the National economic activity
classification published by the Federal Statistical Office.
The complainant is an enterprise headquartered in Saxony and processes
used asphalt and used concrete, using its machines to crush the material
provided by its clients. It applied in 2005 to the tax office for an
investment allowance to be granted for the acquisition of various
vehicles and machines. In response to its enquiry, the Federal
Statistical Office stated, with detailed grounds, that its establishment
was not to be attributed to manufacturing, whereupon the tax office
refused to grant an investment allowance. The Regional Finance Court
(Landesfinanzgericht), by contrast, found in response to the
complainant’s action that the complainant’s activity, in
contradistinction to the attribution carried out by the Federal
Statistical Office, did fall under manufacturing, thereby quashing the
notice of the tax office; the attribution effected by the latter was
said to be manifestly incorrect.
The Federal Finance Court (Bundesfinanzhof) quashed the judgment. The
complainant’s establishment was said not to be attributed to
manufacturing. Given the lack of a statutory legal definition, the lists
of economic activities published by the Federal Statistical Office were
to be consulted to interpret the undetermined legal term
“manufacturing”. If, therefore, the Federal Statistical Office or the
Statistical Office of a Land (state) were to accordingly consider the
attribution of an establishment to a specific economic activity to be
correct, it was said that this attribution should as a rule, according
to the established case-law of the Federal Finance Court, be adopted by
the tax offices when deciding on granting the investment allowance where
this did not lead to an outcome that was manifestly false. The latter
was said not to be the case here.
The First Senate of the Federal Constitutional Court quashed the
judgment of the Federal Finance Court and remitted the case to it for a
new ruling. The judgment violates the complainant’s fundamental right to
effective legal protection under Article 19.4 sentence 1 of the Basic
Law (Grundgesetz – GG) by virtue of the fact that it only to a
restricted extent reviews the lawfulness of the tax office’s refusal to
grant the investment allowance that had been applied for.
In essence, the decision is based on the following considerations:
The fundamental right to effective legal protection gives rise to a
right of the citizen to as effective a judicial review of the impugned
sovereign act as possible. The courts are obliged to completely verify
the impugned administrative acts in legal and factual terms. This also
applies if the impugned administrative decision is based on the
application of undefined legal terms. It is essentially the task of the
courts to lend concrete form to them.
The Federal Finance Court restricts in its judgment the judicial review
of the tax office’s decision regarding the rejection of the investment
allowance in two respects:
1. Firstly, the Federal Finance Court considers the attribution of the
complainant’s enterprise to manufacturing as being fundamentally tied to
the National economic activity classification, which is neither a
statute nor an ordinance, but was created by an administrative authority
solely for statistical purposes. This however does not lead to a
violation of the guarantee of legal protection. It impairs neither the
fact of the courts being bound by the law nor the individual’s right to
effective judicial review if concrete form is lent to undetermined legal
terms through a statutory reference to specific administrative
regulations or other sub-legislative sets of rules, or if the
consultation of such regulations or sets of rules to lend concrete form
is based in a comparable manner on an adequate legal foundation.
This is the case at hand. The recognition of the fundamental binding
nature of the National economic activity classification for the
attribution of an establishment to manufacturing can, in relation to the
granting of an investment allowance, be based on a strong statutory
foundation. The legislative materials relating to the 1999 Investment
Allowance Act, as well as to the preceding regulations, contain
unambiguous documentation indicating that the legislature, when passing
the respective Investment Allowance Act, assumed the binding application
of the National economic activity classification in rulings on the
granting of an investment allowance in the context of the attribution of
an establishment to manufacturing. Linking to the law on statistics is
also not fundamentally improper. The classifications contained in the
law on statistics guarantee to all participants in the investment
allowance procedure a much greater degree of legal certainty and clarity
than a separate understanding of the legal term “manufacturing”,
detached from the law on statistics, would be able to. What is more,
according to the established case-law of the Federal Finance Court, the
breakdown of commercial activities in accordance with the National
economic activity classification is subject to a review as to manifest
error with regard to whether it leads to an obviously false result with
regard to the law on investment allowances.
2. The judgment of the Federal Finance Court however violates the
complainant’s fundamental right to effective legal protection insofar as
it, secondly, counts the statement of the Federal Statistical Office
according to which the activity of the complainant does not belong to
manufacturing as being fundamentally binding and only examines it as to
manifest errors. This reduces the individual legal protection because
the complete review of the administrative decision required, in this
case the decision of the tax office, does not take place, and instead
only a mere review as to manifest error takes place. This grants to the
Federal Statistical Office a partial right of final decision as an
authority.
Rights of final decision which cannot be reviewed by courts, or only to
a restricted degree, regarding rights of an individual may only be
granted to the executive power on the basis of a statute. In doing so,
even the legislature, if it wishes to withdraw judicial review, must
consider that the ultimately binding interpretation of the provision and
the review of the application of the law in an individual case is the
reserve of the courts as a matter of principle. Even the legislature may
not eliminate its effectiveness guaranteed by Article 19.4 by providing
for too numerous or excessively broad latitude for assessment for entire
fields or indeed areas of law. The release of the application of the law
from judicial review always requires sufficiently weighty factual
grounds orientated in line with the principle of effective legal
protection.
The review carried out by the Federal Finance Court, restricted as it
was to a review as to manifest error, is not compatible with the
guarantee of legal protection provided by Article 19.4 sentence 1 of the
Basic Law because there already is no required statutory basis for this
restriction. Neither in the 1999 Investment Allowance Act, nor in the
legislative materials, does one find sound indications of the
statistical authorities having been involved in the decision on the
investment allowance in a manner that would be binding on the finance
authorities and finance courts, or indeed a right of final decision to
be granted to the tax office itself in this regard.
The inadequate judicial review of the Federal Statistical Office’s
decision on allocation, and subsequently the review of the tax office’s
decision by the Federal Finance Court, is also not compensated for by
possibilities for legal protection against the statement of the Federal
Statistical Office itself. The guarantee of effective legal protection
does not rule out stages of the procedure where legal protection is
granted in separation. The statement of the Federal Statistical Office
is however neither a notice containing a basis for assessment that could
be separately challenged in a procedure carried out in stages, nor was
the complainant obliged to accept invoking legal protection against the
statement that might be forthcoming from the administrative courts
because the specialist statement on the part of the statistical
authority is not included by law in the procedure on granting an
investment allowance.
This press release is also available in the original german version.
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