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Unequal treatment of marriage and registered civil partnerships in the Gift and Inheritance Tax Act unconstitutional

Press Release No. 63/2010 of 17 August 2010

Order of 21 July 2010
1 BvR 611/07, 1 BvR 611/07

Pursuant to the provisions in §§ 15, 16, 17, and 19 of the Gift and Inheritance Tax Act in the version dated 20 December 1996 from the 1997 Annual Tax Reform Act (Erbschaftsteuer- und Schenkungsteuergesetz a.F. (a.F. - alte Fassung - former version) - ErbStG a.F.) registered civil partners after creation of the legal institution of civil partnerships in 2001, were significantly more burdened than spouses under inheritance tax law.

While pursuant to §§ 15.1 and 19.1 ErbStG a.F. spouses were subject to the most beneficial Tax Class 1 and, depending upon the amount of the inheritance, were subject to a tax rate between 7 and 30 %, civil partners were classified as "other recipients" and placed in Tax Class III, which provides for tax rates of between 17 and 50 %. Moreover, § 16.1 no. 1 ErbStG a.F. granted spouses a personal exemption in the amount of DM 600,000/€ 307,000 and § 17.1 ErbStG a.F. granted a special exemption for retirement benefits in the amount of DM 500,000/€ 256,000. On the other hand, registered civil partners, because of their placement in Tax Class III, were only entitled to an exemption in the amount of DM 10,000/€ 5,200 (§ 16.1 no. 5, § 15.1 ErbStG a.F.). They were completely excluded from the benefit of the tax exemption for retirement benefits.

In the Inheritance Tax Reform Act (Erbschaftsteuerreformgesetz) of 24 December 2008, the provisions described above in the Gift and Inheritance Tax Act were amended to the benefit of registered civil partners to the extent that the personal exemption and the exemption for retirement benefits are determined in the same way for both inheriting civil partners and spouses. Nevertheless, registered civil partners continue to be treated like distant relatives and unrelated persons and taxed at the highest tax rates. Pursuant to the Federal Government's draft legislation for the 2010 Annual Tax Reform Act of 22 June 2010, complete equality for civil partners and spouses in the gift and Inheritance tax law - also in regard to tax rates - is intended.

Complainant no. 1 is the sole heir of his male civil partner who passed away in August 2001; complainant no. 2 is the heir of her female civil partner who passed away in February 2002. In both cases the tax office set the inheritance tax in accordance with a tax rate from Tax Class III and granted the minimum exemption pursuant to § 16.1 no. 5 ErbStG a.F.. The lawsuits filed by the complainants against these decisions were unsuccessful in the finance courts.

As to their constitutional complaints, the First Senate of the Federal Constitutional Court decided that the inheritance tax law discrimination against registered civil partners in comparison to spouses regarding the personal exemption and the tax rate, as well as their exclusion from the exemption for retirement benefits, is incompatible with the general principle of equality (Article 3.1 of the Basic Law (Grundgesetz - GG)). The orders by the Federal Finance Court (Bundesfinanzhof) have been reversed and the matters have been referred back to it for new decisions. The legislature has until 31 December 2010 to enact a new rule for those old cases affected by the Gift and Inheritance Tax Act, former version, that removes the infringement on equality from the time period between the effective date of the Act on the Termination of the Discrimination of Same-Sex Couples (Gesetz zur Beendigung der Diskriminierung gleichgeschlechtlicher Gemeinschaften) of 16 February 2001 until the effective date of the Inheritance Tax Reform Act of 24 December 2008.

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

As to discriminating against registered civil partners in comparison to spouses there is no difference that is of such weight that it could justify the disadvantage to civil partners in the Gift and Inheritance Tax Act in the version pursuant to the 1997 Annual Tax Reform Act. This applies to the personal exemption pursuant to § 16 ErbStG a.F., to the exemption for retirement benefits pursuant to § 17 ErbStG a.F., and to the tax rate pursuant to § 19 ErbStG a.F.

Granting a privilege to spouses and not to civil partners under the law regarding the personal exemption cannot be justified solely by reference to the state's special protection of marriage and the family (Article 6.1 GG). If the promotion of marriage is accompanied by unfavourable treatment of other ways of life, even where these are comparable to marriage with regard to the life situation provided for and the objectives pursued by the legislation, the mere reference to the requirement of protecting marriage under Article 6.1 of the Basic Law does not justify such a differentiation. The authority of the state to become active for marriage and the family in fulfilment of its duty of protection as set forth in Article 6.1 GG remains completely unaffected by the question of the extent to which others can assert claims for equal treatment. Only the principle of equality (Article 3.1 GG), in accordance with the principles of application developed by the Federal Constitutional Court on this, determines whether and to what extent others, in this case registered civil partners, have a claim for treatment equal to the statutory or actual promotion of married spouses and family members.