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Adding of child benefit to tax liability according to § 31 sentence 5 and § 36.2 sentence 1 of the Income Tax Act even if it is not set off against maintenance payments is compatible with the Basic Law

Press Release No. 126/2009 of 03 November 2009

Order of 13 October 2009
2 BvL 3/05

The burdens of parents arising from the maintenance and care for children are equalised by tax allowances and child benefit. The provisions which are relevant for the assessment period 2001, the one under consideration in the present proceedings, are those of the Income Tax Act in the version of the Financial Advancement for Families Act (Gesetz zur Familienförderung) of 22 December 1999. Accordingly, exemption from taxes to the amount of a child's subsistence level including the child-raising requirements is effected by the tax allowances pursuant to § 32.6 of the Income Tax Act (Einkommensteuergesetz - EStG) or by the child benefit, which is paid on a monthly basis as a tax rebate. The tax allowances are only deducted from the income of the taxpayer if the required exemption from taxes is not effected by the child benefit paid on a monthly basis (examination of whether financial advancement is more favourable through tax allowances or through the payment of child benefit). Where the tax allowances are to be subtracted for tax assessment, the child benefit paid is added to the income tax that is payable. Parents who are not assessed jointly are each entitled to half the tax allowance under § 32.6 EStG. Since the child benefit is only paid to one beneficiary - normally to the parent liable to provide maintenance by caring for the child (§ 64.1, § 64.2 sentence 1 EStG); this was also the case in the initial proceedings of the present case - a claim for equalisation under civil law is equivalent to the drawing of child benefit as regards the addition for tax purposes (§ 31 sentence 5 EStG). According to the legal provisions on maintenance which were valid in the assessment period, half of the child benefit payable for the child had to be set off, pursuant to § 1612b.1 of the Civil Code (Bürgerliches Gesetzbuch - BGB), against the maintenance payment if it was not paid to the parent liable to pay cash maintenance. Pursuant to § 1612b.5 BGB, however, the child benefit was not set off against the maintenance payment if the person liable to pay maintenance was unable to pay maintenance to the amount of 135 per cent of the standard amount according to the Standard Amount Ordinance (Regelbetrag-Verordnung) (so-called shortage case).

In appeal proceedings on points of law lodged against the income tax assessment of a divorced spouse liable to pay cash maintenance to his minor children who do not live in his household, the VIII Senate of the Federal Finance Court (Bundesfinanzhof) considered itself unable to pass a decision and submitted to the Federal Constitutional Court the question of whether in shortage cases concerning maintenance, adding child benefit to the income tax pursuant to § 31 sentence 5 in conjunction with § 36.2 sentence 1 EStG infringes the Basic Law,

The Second Senate of the Federal Constitutional Court decided that § 31 sentence 5 and § 36.2 sentence 1 EStG are compatible with the Basic Law also to the extent that taxpayers are affected by the regulation under § 1612b.5 BGB (on the constitutionality of this provision, see the order of the First Senate of 9 April 2003 - 1 BvL 1/01, 1 BvR 1749/01 - Decisions of the Federal Constitutional Court (Entscheidungen des Bundesverfassungsgerichts - BVerfGE) 108, 52 (70); German press release no. 64/2003 of 5 August 2003). It is compatible with the constitutional requirement of exempting from taxes the subsistence level of the taxpayer and of his or her family entitled to maintenance, and with the general principle of equality, that the income tax which is decreased by the tax allowances is increased by half the amount of the child benefit paid also for those taxpayers who are unable to pay maintenance to the amount of 135 per cent of the standard amount according to the Standard Amount Ordinance. The decision was reached by seven votes to one.

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

In cases such as the one of the initial proceedings, which are the only cases under consideration here, the exemption of the child-related subsistence level from taxes, which is constitutionally required, is effected by the taxpayer's income being reduced by the tax allowances under § 32.6 EStG. Thus, the legislature has opted in favour of a constitutionally admissible generalising regulation which takes into account the livelihood-securing minimum expenditure for child maintenance in the same manner for all taxpayers in the tax assessment base. To avoid the child's subsistence level being taken into account twice, the child benefit paid to the taxpayer on a monthly basis as a tax rebate (§ 31 sentence 3 EStG) is to be granted back by adding it to the income tax payable (§ 31.5 EStG).

In compliance with the recognisable will of the legislature, the child benefit is paid to the parent liable to pay cash maintenance also in those cases in which the child benefit had not, or only in part, been set off against the cash maintenance pursuant to § 1612b.5 BGB because it had to be used primarily to for replenishing the child maintenance (so-called shortage cases).

A payment of child benefit which is to be equalised pursuant to § 31.5 EStG is not only to be assumed if the taxpayer can freely dispose of the child benefit which is due to him or her for a child. As the parents are paid child benefit above all for the benefit of the child for its material subsistence level and for its care and education requirements, the provision of § 1612b.5 BGB determines the purpose for the use of the child benefit. What is behind this drafting of the provision is the substantive obligation of the person liable to pay cash maintenance to increase, in a shortage case, the maintenance due according to § 1612a.1, § 1612b.1 BGB to the subsistence level in cash (135 per cent of the standard amount according to the Standard Amount Ordinance). Hence, in economic terms, the regulation constitutes an increase of the maintenance obligation of the person liable to pay cash maintenance. Changes in the individual maintenance burden, however, do not affect the system of tax relief by generalised tax allowances of the person liable to pay maintenance as long as the tax allowances adequately cover the child's subsistence level, something that has not been doubted in the present proceedings.

A violation of the limits, which follow from Article 3.1 of the Basic Law (Grundgesetz - GG), of the power to issue statutory regulations cannot be identified. The tax relief of the taxpayers affected by § 1612b.5 BGB regarding their child-reduced ability to pay follows the same legal provisions as that of other persons liable to pay maintenance. The financial restrictions which these provisions place on the persons affected are the consequence of their lower ability to pay. It is not apparent how this could result in an obligation of the legislature to create special regulations for this group of persons that deviate from the general mechanisms of the equalisation of family benefits in order to comply with the principle of equality.