In a decision dated 10 October 2012 published on Friday, the
Federal Constitutional Court [Bundesverfassungsgericht, BVerfG]
permitted the artificial retroactive effect of a tax law from the
date after the adoption of the resolution by the Mediation
Committee [Vermittlungsausschuss] (1 BvL 6/07). The decision also
has substantial effects upon other cases and will serve as a
standard for the legislator of tax law amendments. According to
Gunnar Knorr of the law firm of Oppenhoff & Partner, in future,
taxpayers will have to pay even greater attention to amendments of
the law, especially at the end of the year.
The proceedings at issue concerned the inclusion for trade tax
purposes of so-called dividends on diversified holdings. These
dividends, which accrue to stockholders which only hold an
insignificant participation (below 10%) in an enterprise, were not
subject to trade tax for certain payments in the year 2001.
However, through the Act on the Further Development of Corporate
Income Tax [Unternehmenssteuer-fortentwicklungsgesetz] dated 20
December 2001, the legisla-tor subjected the dividends on
diversified holdings to trade tax with retroactive effect for the
The Constitutional Court has now stipulated the precise day on
which dividends on diversified holdings are subject to trade tax.
The Act is null and void for dividends on diversified holdings
which accrued by the date of the Mediation Committee's
resolution regarding the Act. If the dividends accrued after the
date of the Mediation Committee's resolution, in contrast, the
retroactively enforced tax obligation applies.
The decision also has substantial effects upon other cases and
will serve as a standard for the legislator in case of future tax
law amendments. A distinction is fundamentally made between
so-called genuine retroactive effect ["echte
Rückwir-kung"], where a law is subsequently applied to a
situation which has already been concluded, and so-called
artificial ret-roactive effect ["unechter
Rückwirkung"], where a law is ap-plied to a situation
which has not yet been concluded but where parts thereof have
already been realised. The majority of taxes such as income tax,
corporate income tax and trade tax do not accrue until the expiry
of the assessment period. Amendments to laws during the course of a
year are not genuinely retroactive (i.e. "artificial")
since they refer to taxes which will only accrue in the future. The
Constitutional Court nevertheless sees an increased protection of
legitimate ex-pectations of citizens regarding the continued
validity of existing law. For this reason, artificial retroactive
effects to the detriment of taxpayers are also are not permitted
without limitation. Conversely, the Constitutional Court regularly
sees no need for protection if the taxpayer should already have
reck-oned with the amendment of the law.
With respect to the trade tax on dividends on diversified
holdings, the court drew the line for the need to protect
legitimate expectations at the publication of the Mediation
Committee's resolution. However, it remains open where the line
must be drawn if laws do not originate from negotiations of the
Mediation Committee. Conceivably, the first reading in the
Bundestag could already be taken as the basis. On the other hand,
it is not possible to remove the need to protect legitimate
expectations until it is certain to the greatest extent possible
that a proposal is to become law, for example through the consent
of the Bundesrat.
In future, the tax legislator is certainly able make stricter
tax regulations subject to a certain retroactive effect,
particularly in cases where it wishes to prevent the announcement
of stricter legislation already leading to countermeasures on the
part of potential taxpayers. Enterprises, in particular, should
therefore continuously monitor ongoing legislative processes. Only
in this way is it possible to ensure that allowance is made for tax
law amendments in ongoing transactions. Especially at the end of
the year, taxpayers should pay attention to possible amendments of
the law. They could otherwise face tax consequences that are
different to what they had expected on the basis of the legal
situation at the relevant time.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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