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Exclusion of Registered Civil Partnerships from Income Splitting for Spouses (“Ehegattensplitting”) Unconstitutional
Press Release No. 41/2013 of 06 June 2013
Order of 07 May 2013
2 BvR 909/06
The unequal treatment of registered civil partnerships and marriages regarding income splitting for spouses is unconstitutional. The corresponding provisions of the Income Tax Act violate the general right to equality before the law because there are no sufficiently weighty factual reasons for the unequal treatment. This is what the Second Senate of the Federal Constitutional Court decided in an order published today. The statutory framework has to be amended retroactively to the date the Civil Partnerships Act (Lebenspartnerschaftsgesetz) entered into force, 1 August 2001. During the transition period, the existing provisions on income splitting are also to be applied to registered civil partnerships. The decision was taken with 6:2 votes; Justice Landau and Justice Kessal-Wulf delivered a joint separate opinion.
The Decision is Essentially Based on the Following Considerations:
1. The Income Tax Act allows spouses the joint assessment to income tax, which results in what is known as the "splitting rate" (Splittingtarif, §§ 26, 26b, 32a sec. 5 Income Tax Act, Einkommensteuergesetz - EStG). Having entered into registered civil partnerships, the claimants applied to have their income taxes for 2001 and 2002 assessed jointly with their respective partners. The fiscal authorities, however, assessed these taxes separately. Legal actions against these assessments were unsuccessful before both the Fiscal Courts and the Federal Fiscal Court. The claimants now challenge the decisions of these courts with their constitutional complaints.
2. §§ 26, 26b, 32a sec. 5 EStG are incompatible with Art. 3 sec. 1 of the Basic Law (Grundgesetz - GG) in so far as they do not allow registered civil partners - as opposed to married spouses - to file their income taxes jointly and thus benefit from income splitting. The Senate reversed the challenged decisions and remitted the proceedings for a new decision to the Federal Fiscal Court.
a) The unequal treatment of married spouses and registered civil partners in the provisions on income splitting for spouses constitutes an indirect discrimination because of sexual orientation, which has to be measured against the right to equality before the law of Art. 3 sec. 1 GG. Though the provision itself refers to marital status, it is virtually impossible to separate the choice between marriage and a registered civil partnership from one's sexual orientation.
In general, when groups of people are treated differently, the legislature is strictly bound to the requirements of the principle of proportionality. The requirements for justification are the stricter, the closer the personal characteristics come to the criteria of Art. 3 sec. 3 GG, i.e. the greater the danger that the unequal treatment leads to the discrimination of a minority. This is the case when differentiating according to sexual orientation.
b) The specific protection of marriage and family in Art. 6 sec. 1 GG itself cannot justify the unequal treatment of marriage and registered civil partnerships. The values enshrined in Art. 6 sec. 1 GG constitute a factual reason for differentiation that first and foremost allows to privilege marriage as compared to other ways of living together, which are characterised by a lesser measure of mutual commitments. If the privileged treatment of marriage includes that other ways of life that are structured in a similarly binding way are placed at a disadvantage, the mere reference to the requirement to protect the institution of marriage does not, however, justify such a differentiation.
From the very beginning, the legislature has structured the civil partnership in a way comparable to marriage as a community of extensively shared responsibility, and it continuously reduced existing differences to marriage. Just like marriage, the civil partnership differs both from informal relationships between partners and from legal relationships between relatives.
c) For these reasons, in addition to the mere reference to Art. 6 sec. 1 GG, a sufficiently weighty factual reason is needed to justify the preferential treatment of marriage compared to civil partnerships. This reason must be measured and weighed against the respective object and purpose of the regulation. In the case of the splitting method, neither the provision's aim, nor the legislature's authority to categorise in the field of tax law, provides such a reason.
aa) The aim of the splitting method, which was introduced in 1958, is to tax marriages with the same total income in the same way - independent of the distribution of income between the spouses. In doing so, the splitting method follows the underlying concept in the civil law of marriage as a union of economic production and consumption. The registered civil partnership, too, is structured as such a union. Since its introduction in 2001 it has been comparable to marriage regarding the fundamental taxation-related aspects: Both institutions include identical provisions which stipulate that either partner can act on behalf of the couple in transactions for everyday necessities, and that the partners' rights to make dispositions over their personal property are limited. Furthermore, if civil partners did not want to enter into a civil partnership contract, they were obliged since 2001 to conclude what is known as an Ausgleichsgemeinschaft (a community in which merely the accrued gains are shared), for which the provisions on the marital Zugewinngemeinschaft applied accordingly. As of 1 January 2005, the Zugewinngemeinschaft explicitly became the default property regime for registered civil partnerships. Moreover, the adjustment of pension rights (Versorgungsausgleich) - introduced for divorces as recently as 1977 - also applies to the dissolution of civil partnerships.
Family-related intentions cannot justify the unequal treatment of marriages and registered civil partnerships with regard to the splitting method. According to the Income Tax Act, granting the splitting advantage depends solely on the existence of a marriage in which the partners do not permanently live apart. It is irrelevant whether there are children or whether the spouses might have children in the course of their marriage.
The splitting method gives the spouses more leeway in the distribution of tasks within the marriage. It is thus regarded as a measure that is primarily aimed at families, in which one spouse does not, or only to a limited degree, have paid employment because of family responsibilities (i.e. due to raising children or taking care of family members). However, both the Civil Partnerships Act and marriage law recognise that the partners are free to choose their own personal and economic lifestyle, and they are based on the assumption that looking after the family and paid employment have equal value. There are no apparent differences in the situation of married spouses and civil partners that could justify such unequal treatment. First, not every marriage includes children, and not every marriage is aimed at having children. Furthermore, there are more and more civil partnerships in which children are raised; situations, in which one of the partners primarily cares for the children are quite possible and not completely unusual.
bb) In view of the above, the privileged status of marriage as compared to civil partnership cannot be justified with the legislature's right to categorise in the field of tax law.
"Categorisation" means that one provision may regulate a number of situations that are essentially alike. In such cases, the provision's legislative purpose must provide guidance regarding the factors that make these situations so alike. Categorisation requires that any ensuing hardships and injustices would be difficult to avoid, that they only apply to a relatively small number of people, and that the violation of the right to equality before the law is not very severe. The more constitutional requirements apart from Art. 3 sec. 1 GG apply to a given situation, the less leeway does the legislature have in designing the categories. The legislature does not have any leeway if the specific prohibitions of discrimination of Art. 3 sec. 2 and 3 GG are affected.
The fact that both registered civil partnerships and marriages form unions of economic production and consumption would require the same tax treatment under such a categorisation.
Neither can support for raising children be an argument for a category-based better treatment of marriages than registered civil partnerships. It is true that according to calculations of the Federal Ministry of Finance, 91 % of the total splitting volume comes from families with children who are, or used to be, relevant for tax calculation. However, since the financial benefit from income splitting is the greater, the larger the difference in income between the two partners is, registered civil partnerships will - just like marriages - especially benefit from splitting if they raise or have raised children and, as a consequence, one of the partners has no, or only limited, paid employment. The fact that children tend to be far less common in civil partnerships than in marriages is not a sufficient reason to limit the category-based application of the splitting method to married couples. Discriminating civil partnerships with regard to income splitting can be avoided without major problems for the legislature and administration. To ignore that children are also raised in civil partnerships would constitute an indirect discrimination that is specifically based on the partners' sexual orientation.
3. The legislature is required to eliminate the established violation of the Constitution retroactively to the time the institute of "civil partnership" was introduced, 1 August 2001. Because this can be accomplished in different ways, the Court can only issue a declaration of incompatibility of the provisions with the Constitution. In order to avoid insecurity about the legal situation until a new regulation enters into force, which the legislature must issue without delay, §§ 26, 26b, 32a sec. 5 EStG shall remain in force with the following stipulation: From 1 August 2001 onwards, also registered civil partners whose tax assessments have not yet become final may demand under the conditions applying to married spouses that their taxes be assessed jointly and the splitting method be used.
Separate Opinion of Justice Landau and Justice Kessal-Wulf:
1. The Senate does not recognise that, according to the legislature's explicit intention, the registered civil partnership was not designed as a union of economic production and consumption comparable to marriage until the Act to Revise the Civil Partnerships Act entered into force on 1 January 2005. This alone already justifies the preferential treatment of marriage during the fiscal years 2001 and 2002 - the only years relevant for this case. There is thus no need to have recourse to Art. 6 sec. 1 GG.
a) The institution of marriage is designed in accordance with the Constitution as a union of economic production and consumption in which each spouse participates equally in the other's income and obligations. §§ 26, 26b, and 32a EStG are based on the concept of marriage in civil law and social security law, and continue this concept with regard to income taxation. The legislature considered income splitting a "reflex" to the Zugewinngemeinschaft (community of accrued gains). In accordance with the duty of Art. 6 sec. 1 GG to protect marriage and family, the splitting method preserves and strengthens the matrimonial union of economic production and consumption. A spouse has the option to permanently or temporarily work part time, or to even completely concentrate on family work, without being taxed less favourably.
b) Regarding the criterion of comparability, the matrimonial property regime and the law on the adjustment of pension rights are thus particularly relevant; in addition, accompanying measures from social security law, especially regarding survivors' benefits, need to be considered. These constitutive aspects, however, have only been extended to registered civil partnerships as of 1 January 2005. The transitional provisions did not include any mandatory retroactive extension to existing civil partnerships.
c) The complainants' civil partnerships can thus - at least regarding the fiscal years 2001 and 2002, the only years relevant for this case - not be recognised as unions of economic production and consumption within the meaning of the provisions on income splitting. The Senate's referral to its case law on estate tax, gift tax, and real estate transfer tax, as well as to family allowances under salary law, cannot establish findings to the contrary. None of the quoted decisions establishes principles that could be directly transferred to the area of income tax law. By merely referencing these decisions, the Senate subjects itself to the criticism that it is continuing its previous jurisprudence in an overly schematic way.
Extending income splitting to registered civil partners for the fiscal years prior to 2005 means that the partners are granted income tax benefits to which a union of economic production and consumption is entitled, but with no need for the partners to be in any comparable way responsible for each other - a responsibility that is supposed to mirror the economic union's advantages. The Senate's reasoning further does not pay attention to the fact that the legislature has deliberately chosen not to completely equalise the institutes of marriage and civil partnerships, and instead has chosen as legislative standard that the civil partners are supposed to be economically independent. The Senate replaces the assessment of the legislature, which is the only legitimate authority, with its own.
2. The Senate's assumption that the legislature's right to categorise does not justify the unequal treatment of marriage and civil partnership lacks a sound basis.
a) The Senate concedes that with the introduction of the splitting method in 1958, the legislature also pursued family policy purposes. The Senate does not, however, draw the necessary conclusion that this means of family policy can justify a category-based privileged treatment of marriage as compared to other ways of life, even if they are structured in a similarly legally binding way. According to the social reality at the time the income splitting was introduced, the legislature could assume that the overwhelming majority of marriages were aimed at raising children. The legislature could thus let this method - in a categorising way - only depend on the existence of a marriage and not, in addition to that, on the existence of children.
b) Nowadays, more and more children are raised in registered civil partnerships. However, this does not necessarily allow the conclusion that the splitting method had to be opened to all registered civil partnerships by way of categorisation as early as in the fiscal years 2001 and 2002. There is no proof for the Senate's assumption that such fiscal benefits would also typically benefit civil partnerships with children. Furthermore, the question that is essential for a categorisation remains unanswered, namely the percentage of civil partnerships in which children were raised.
A possible unequal treatment of registered civil partnerships in which children are or were raised could also have been mitigated by a limited application of the splitting method to these cases alone. The Senate, however, did not discuss such a solution in any depth, but exclusively referred to the category-based inclusion of civil partnerships.
3. Finally, considering the purpose of family policy of the legislation on income splitting, the legislature should have been granted the option to first evaluate the registered civil partnership as to its advance effect on the family and the succession of generations and then, possibly, take tax consequences. The Senate's retroactive declaration of incompatibility with the Basic Law omits the legislature's leeway in assessing such issues and further limits the ways in which it can act. Moreover, in doing so, the Senate overrides the Federal Constitutional Court's earlier case-law according to which the legislature does not have to retroactively rectify a situation that is contrary to the Basic Law if the constitutional situation had not been sufficiently resolved.