Federal Constitutional Court - Press office -

Press release no. 65/2011 of 26 October 2011

Order of 4 October 2011 – 1 BvL 3/08 –

On the admissibility of a concrete review of statutes regarding an Act 
transposing European Union law


The Investment Allowance Act (Investitionszulagengesetz – InvZulG) 
regulates the payment of State aid (investment allowances) for specific 
business investments in Berlin and the new federal Länder. The European 
Commission decided in May 1998 that national State aid schemes which ran 
counter to the specific Community guidelines which the Commission had 
previously established and the appropriate measures [for State aid in 
connection with investments] in the processing and marketing of 
agricultural products which it had simultaneously established were 
incompatible with the common market. According to the decision, specific 
investments in farms, including mills, are excluded from receiving 
subsidies. Germany was instructed in the decision, which was served on 2 
July 1998, to accordingly amend, or where necessary abolish, existing 
aid schemes within two months. The requirement was transposed by the new 
provision, which came into force on 24 December 1998, contained in § 2 
sentence 2 no. 4 InvZulG. Accordingly, certain commodities were not 
eligible in the processing and marketing of agricultural products which 
had been acquired or produced after 2 September 1998.

The plaintiff of the original proceedings runs a mill in the new federal 
Länder. On the basis of the new provision, the tax office refused to 
grant to the plaintiff an investment allowance for investments of DM 3.9 
million on grounds that these had not been carried out until after 2 
September 1998. With its action lodged against this, the plaintiff 
essentially claims a violation of the constitutional ban on 
retroactivity, arguing that the investment decisions in question had 
already been taken prior to 3 September 1998, and hence indeed prior to 
the proclamation of the new provision. 

The Finance Court submitted the question for review to the Federal 
Constitutional Court as to whether the provision contained in § 2 
sentence 2 no. 4 InvZulG is compatible with the rule-of-law ban on 
retroactivity in that it also covers investments with regard to which 
the investor had taken a binding investment decision prior to 28 
September 1998 – the date on which the letter was published with which 
the Federal Government announced that it would be amending the 
Investment Allowance Act. The Finance Court argued that an investor 
enjoyed from the time of his or her binding investment decision 
protection of legitimate expectations against statutes retroactively 
restricting or rescinding the fiscal promotion of the investment; this 
confidence eligible for protection was said not to have ceased to exist 
until the Federal Government’s letter had been published. It further 
argued that the retroactive effect linked with the new provision was 
constitutionally not justified and also not necessary according to the 
Commission’s decision. According to the decision, an obligation existed 
with effect for the future only, but not to refuse to grant State aid 
for investments which had already been embarked on in the shape of 
binding investment decisions. Since the breach of the law was founded on 
national law, a submission to the European Court of Justice could not be 
considered. 

The First Senate of the Federal Constitutional Court has ruled that the 
submission is inadmissible because the submitting Finance Court has not 
adequately clarified whether the legal provision which it judges to be 
unconstitutional is based on a requirement of European Community law 
that is binding on the German legislature, or whether latitude has been 
granted to the latter. The materiality of the submission for the 
decision has hence not been adequately set forth. 

In essence, the decision is based on the following considerations: 

1. An Act which transposes Union law can only be submitted to the 
Federal Constitutional Court for a ruling on its constitutionality if it 
is subject to review by the Federal Constitutional Court. As long as the 
European Union generally ensures effective protection of fundamental 
rights as against the sovereign powers of the Union which, in essence, 
is to be regarded as being substantially similar to the protection of 
fundamental rights provided by the Basic Law (Grundgesetz), the Federal 
Constitutional Court however no longer exercises its jurisdiction to 
decide on the applicability of Union law in Germany cited as the legal 
basis for any acts on the part of German courts or authorities, and 
hence no longer reviews such legislation by the standard of fundamental 
rights. Also, a domestic legal provision which transposes a directive or 
a decision into German law is not examined for compatibility with the 
fundamental rights of the Basic Law if Union law fails to leave to the 
German legislature any latitude in such transposition, but makes binding 
stipulations. In this case, the submission of a statute transposing 
Union law to the Federal Constitutional Court is inadmissible because 
the question as to its compatibility with the Basic Law is not material 
to the decision. 

A court has hence to clarify prior to submitting the statute to the 
Federal Constitutional Court whether the German legislature was left 
with latitude in transposing Union law. In order to do so, if there is a 
lack of clarity regarding the implications of Union law, it must 
initiate preliminary ruling proceedings before the European Court of 
Justice, regardless of whether it is a court of final instance or not. 
There is an obligation under Union law to submit to the European Court 
of Justice exclusively for courts of final instance whose rulings 
themselves cannot be challenged with appeals of national law. If it is 
however unclear whether and to what degree Union law leaves latitude to 
the Member States, even instance courts are obliged, prior to making a 
submission to the Federal Constitutional Court, to initiate preliminary 
ruling proceedings to the European Court of Justice. This is a matter of 
ascertaining the power to review of the Federal Constitutional Court, 
and hence a preliminary question which absolutely must be clarified in 
order to render the review of statutes admissible. 

Furthermore, in its reasoning for the submission, the submitting court 
must address the question of the latitude for transposition left to the 
national legislature, and must present sufficiently clearly the reasons 
for the materiality of its submission to the ruling. 

2. The submission made by the Finance Court does not satisfy these 
prerequisites. It has not even dealt with the possibility of a 
restricted constitutional review by the Federal Constitutional Court. 
What is more, there is no adequate information regarding the extent of 
the binding effect of the Commission’s decision. The statement that the 
Commission had only created a regulation for the future does not force 
one to conclude that it was to remain permissible to grant investment 
allowances on expiry of the two-month transposition period if a binding 
investment decision had already been taken prior to the expiry of the 
deadline. According to its wording, the Commission’s decision, rather, 
stipulated that no more investment allowances were to be granted on 
expiry of the period, regardless of whether an investor had already made 
a binding investment decision or not. In view of this, the Finance Court 
already did not adequately portray the materiality of the submission to 
the ruling. 

Moreover, it should have submitted the interpretation question that is 
relevant here for the existence of national latitude for transposition 
to the European Court of Justice in proceedings for a preliminary ruling 
because this cannot be answered beyond a doubt based on of the case-law 
of the European Court of Justice. 


This press release is also available in the original german version.