FEDERAL CONSTITUTIONAL COURT

– 2 BvR 736/13 –

IN THE NAME OF THE PEOPLE

In the proceedings
on
the constitutional complaint

1. against

   a)the Order of the Federal Labour Court (Bundesarbeitsgericht ) of 14 February 2013 – 3 AZB 5/12 –, b)the issuance of the court certificate of enforceability to the Partial Judgment by Default of the Munich Labour Court (Arbeitsgericht ) of 25 May 2011 – 35 Ca 17879/09 –

2. and application for a preliminary injunction

the First Chamber of the Second Senate of the Federal Constitutional Court with the participation of Justices

President Voßkuhle,

Gerhardt,

Huber

unanimously held on 17 March 2014:

3. 1.The issuance of the court certificate of enforceability to the Partial Judgment by Default of the Munich Labour Court of 25 May 2011 – 35 Ca 17879/09 – and the Order of the Federal Labour Court of 14 February 2013 – 3 AZB 5/12 – violate the complainant’s right under Article 101(1) second sentence of the Basic Law (Grundgesetz – GG), which is a right that is equivalent to a fundamental right.

4. The decisions are reversed.

5. The issue is remanded to the Munich Labour Court.

6. The Order of the Munich Higher Labour Court (Landesarbeitsgericht ) of 20 December 2011 – 8 Ta 393/11 – is without effect.

7. 2.The Federal Republic of Germany must reimburse the complainant for its necessary expenses.

R e a s o n s :

The constitutional complaint concerns the question of whether the German labour courts have jurisdiction to decide on the retention of Greek withholding tax by the Hellenic Republic vis-à-vis a Greek citizen it employs in Germany.

I.

1. The claimant in the initial proceedings, who only holds Greek nationality, had sued the complainant before the Munich Labour Court for “repayment” of withholding tax, levied by the complainant, of 5% on the claimant’s gross income, amounting to a “gross” total of EUR 15,198.22 plus interest. Since 1989, the claimant has been employed by the complainant as a teacher at the “Private Elementary Schools of the Hellenic Republic” in Munich and the District (Landkreis ) of Dachau. As the body responsible for these private schools, the complainant had entered into an employment contract with the claimant on 1 July 1994. The claimant receives his gross income from the public coffers of the Hellenic Republic. Art. 8(2) of this employment contract provides that, due to the complainant’s extra-territorial status as employer, the claimant is required to pay the full amount of social security contributions, as well as income and church taxes, to the competent German authorities or institutions himself.

By letter of 24 January 2002, the Greek Consulate General in Munich informed the claimant that starting 1 February 2002, “on behalf and in the interest of the Hellenic Republic, 5% of your monthly gross income will be retained as taxes”. This was to apply retroactively effective September 2001. The tax was collected every month by direct deduction, stating the Greek tax base, from the claimant’s gross income.

A double taxation agreement under public international law (hereinafter: DTA) between the Federal Republic of Germany and the complainant governs the exercise of the powers of taxation over the state’s nationals abroad.

Art. X DTA of 18 April 1966 (Federal Law Gazette, Bundesgesetzblatt – BGBl II 1967 p. 852) reads:

Article X [Revenue From Public Funds]

(1) Remuneration for currently provided services paid from public funds of the Kingdom of Greece or one of its local authorities shall be taxable only in this State, unless the payment is made to a German national who is not also a national of the Kingdom of Greece.

[…]

2. With his claim filed before the Munich Labour Court on 25 November 2009, the claimant sought repayment of the “withholding tax” retained between 2002 and 2008, as well as omission of such future deductions.

a) The complainant did not appear for the conciliation hearing (Gütetermin ). As a result, the Munich Labour Court issued a partial judgment by default (Teilversäumnisurteil ) on 25 May 2011, which stipulated that the claimant had a right to the desired repayment and the injunction. The complainant entered a protest to this, but the decision on this issue is still pending.

b) In the enforcement proceedings, which are subject of this constitutional complaint, the complainant, by letter of 28 September 2011, filed a so-called reminder serving as a legal remedy against the issuance of the court certificate of enforceability (Erinnerung gegen Erteilung der Vollstreckungsklausel , § 62(2) of the Labour Court Act, Arbeitsgerichtsgesetz – ArbGG in conjunction with § 732 of the Code of Civil Procedure, Zivilprozessordnung – ZPO) to the partial judgment by default of the Munich Labour Court. At the same time, the complainant sought a preliminary injunction blocking the execution of the judgment. It argued that the German courts had no jurisdiction because the only disputed issue in the present case was the taxation of the claimant by the complainant under Art. X(1) DTA. According to the complainant, subject matter of the litigation was thus whether and to what extent the Hellenic Republic could tax its nationals on German territory, i.e. the sovereign act of a sovereign state. Due to the principle of sovereign immunity, and pursuant to § 20(2) of the Courts Constitution Act (Gerichtsverfassungsgesetz – GVG) in conjunction with Art. 25 GG, Germany had no jurisdiction over this matter. Because § 20(2) GVG precludes any judicial action in such cases, judgments rendered against somebody not subject to German jurisdiction are void in the complainant’s opinion. Since the partial judgment by default was void, no court certificate of enforceability should have been issued for it. By order of 2 November 2011, the Munich Labour Court rejected the reminder. The complainant challenged this decision with a complaint subject to a time limit (sofortige Beschwerde ), as a result of which the Munich Higher Labour Court, by order of 20 December 2011, reversed the decision of the Munich Labour Court and declared the compulsory enforcement altogether impermissible. Against this decision, the claimant brought a complaint on points of law (Rechtsbeschwerde ) to the Federal Labour Court.

c) By order of 14 February 2013, the Federal Labour Court reversed the decision of the Munich Higher Labour Court of 20 December 2011 and dismissed the complainant’s complaint against the order of the Munich Labour Court of 2 November 2011. According to the Federal Labour Court, the complainant was not exempt from German jurisdiction pursuant to § 20(2) GVG. Therefore it could remain open whether judgments against persons who are not subject to German jurisdiction are void and thus without effect, or whether they could merely be contested. The dispute did not concern a sovereign activity of the complainant, the Federal Labour Court argued. In so far as there was any possibility for an exemption from German jurisdiction under the doctrine of sovereign immunity, this would be under the public international law principle that no state is subject to foreign jurisdiction. There was, however, no general rule of international law that a state should enjoy immunity for non-sovereign activities. Thus, under federal law within the meaning of Art. 25 GG and pursuant to the general rules of customary international law, foreign states are only exempt from German jurisdiction to the extent that their sovereign activities are concerned. If an act belonged to the core area of sovereign activities, public international law could, as an exception, require that the foreign state’s acts qualify as sovereign, even though domestic law would characterise them as private rather than public legal activities. The Federal Labour Court further held that the Federal Constitutional Court had only included in this core area the exercise of foreign and military powers, legislation, the exercise of police powers, and the administration of justice. In a dispute arising from an employment contract under private law it depended in principle on whether the tasks assigned to the employee were sovereign or non-sovereign by their nature, determined by the content of the assigned tasks. Thus, a foreign state exercised its sovereign powers when it entrusted an employee with the exercise of sovereign activities. As a teacher at the Private Elementary Schools of the Hellenic Republic, the claimant did not, however, engage in activities related to the exercise of the complainant’s sovereignty under the general rules of public international law. Neither was the complainant exempt from German jurisdiction because the parties were arguing about whether the complainant could withhold taxes from the claimant’s income. It could remain open whether [the complainant’s] domestic law classified the tasks of a teacher at a school of the complainant as sovereign activity, because German law alone was relevant for the determination of immunity. Accordingly, the complainant had to be treated as a private employer. Nor did the complainant’s immunity to German jurisdiction result from the fact that the parties argued over the complainant’s right to withhold part of the claimant’s wages under the DTA. According to the Court, at the heart of the dispute was not the complainant’s right to tax the claimant’s income for itself, which was contrary to the provisions of the employment contract, but the ensuing possibility of double taxation, for which Art. XX DTA required a mutual agreement procedure in Germany. Consequently, the German courts had jurisdiction.

II.

In its constitutional complaint, the complainant alleges a violation of Art. 101(1) second sentence GG. In support of this claim, it states that the Federal Labour Court should have recognised that the deduction of withholding tax by the Greek government constituted a sovereign act, and that the complaint on points of law should thus have been rejected. Jurisprudence by the Federal Labour Court as well as the Federal Constitutional Court existed on these very issues. If the Federal Labour Court had wanted to deviate from this jurisprudence or had intended to deny the existence of a case of sovereign activity, it would have had to submit the case for decision either to the Grand Senate (Großer Senat ) pursuant to § 45(2) ArbGG, or to the Federal Constitutional Court pursuant to Art. 100(2) GG. The complainant states that the court arbitrarily failed to do so.

III.

The Federal Government and the claimant had an opportunity to submit statements.

1. The claimant considers the constitutional complaint to be at least without merit.

2. The Foreign Office submitted a statement for the Federal Government, considering the constitutional complaint to be well-founded.

It held that both labour and tax law applied to the actual facts of the case. While the payment of wages constituted performance of a private law contract, retaining withholding tax constituted a sovereign activity by the complainant, the legality of which was to be assessed solely pursuant to Greek tax law, and which could typically only be resolved in proceedings under public law. With regard to its sovereign acts, the complainant enjoyed immunity under public international law. The fact that the complainant was also the claimant’s employer did not change the nature of this relationship. According to the Foreign Office, the fiscal relationship between the complainant and the claimant – an issue concerning the fiscal powers of the Hellenic Republic – pertained to the core of its sovereign activities, namely the financing of the state budget by raising taxes. Also pursuant to German law – applicable as lex fori –, an employer fulfils a public task for the tax authorities by deducting income tax. Since the financing of the state budget enables the exercise of other government functions in the first place, the collection of taxes would even qualify as sovereign if German law saw this differently.

IV.

The Chamber admits the constitutional complaint for decision because it is appropriate in order to enforce the fundamental rights of the complainant (§ 93a(2) letter b of the Federal Constitutional Court Act, Bundesverfassungsgerichtsgesetz – BVerfGG) and grants the constitutional complaint. It is called to do so because the Federal Constitutional Court has already decided the constitutional issues determining the outcome of the constitutional complaint, and because the constitutional complaint is both admissible and clearly well-founded (§ 93b first sentence in conjunction with § 93c(1) first sentence BVerfGG).

1. The constitutional complaint is admissible.

Even as a foreign state, the complainant can claim a violation of Art. 101(1) second sentence GG, which is a right that is equivalent to a fundamental right. Since this right is less relevant for individual self-determination than for ensuring the functioning of the administration of justice, its scope of protection covers both domestic legal entities under public law (cf. Decisions of the Federal Constitutional Court, Entscheidungen des Bundesverfassungsgerichts – BVerfGE 61, 82 <104>; 75, 192 <200>) and foreign legal entities under private (cf. BVerfGE 18, 441 <447>; 21, 207 <208>; 23, 229 <236>; 64, 1 <11>) and public law. This also applies to foreign states (cf. Chamber Decisions of the Federal Constitutional Court, Kammerentscheidungen des Bundesverfassungsgerichts – BVerfGK 1, 32 <37 and 38>; 9, 211 <213>).

2. The constitutional complaint is also well-founded. The challenged decisions violate the principle of sovereign immunity (Art. 25 GG) (a) and thus interfere with the complainant’s right to a lawful judge under Art. 101(1) second sentence GG (b).

a) When public international law mentions sovereign immunity in a general sense, this refers to the customary international law principle that a state is not subject to the jurisdiction of foreign governments. Based on the principle of the sovereign equality of states, the general rule applies that states do not sit in judgment on each other. However, not least because of increasing commercial cross-border activities by state actors, the law of general sovereign immunity has changed from an absolute to a merely relative right. It is no longer a general rule of public international law that a state enjoys immunity even for non-sovereign activities (cf. most recently BVerfGE 117, 141 <152 and 153>).

aa) The jurisprudence of the Federal Constitutional Court has always distinguished between the immunity of sovereign acts of foreign states which is generally recognised under public international law (cf. BVerfGE 16, 27 <51>; 117, 141 <152 and 153>) on the one hand and non-sovereign acts of foreign states on the other hand (cf. BVerfGE 16, 27 <51>; 117, 141 <153>). In line with general international practice, the Federal Constitutional Court assumes that sovereign acts of foreign states (so-called acta iure imperii ) are, as a rule, always subject to sovereign immunity (cf. BVerfGE 16, 27 <51>; 117, 141 <152 and 153>). This applies in a similar manner to compulsory execution against domestic assets of foreign states if these assets serve sovereign purposes (BVerfGE 46, 342 <392 and 393>; 64, 1 <40>; 117, 141 <154>; BVerfGK 19, 122 <128>).

bb) Since general public international law does not distinguish between sovereign and non-sovereign activities of states, this distinction must usually be made pursuant to domestic law (cf. BVerfGE 16, 27 <62>; 46, 342 <393 and 394>; 64, 1 <42>). The use of domestic provisions to distinguish between sovereign and non-sovereign activities of states only finds its limits when it comes to the range of activities that all states tend to recognise as sovereign. This concerns for instance the exercise of foreign and military powers, legislation, the exercise of police powers, and the administration of justice (cf. BVerfGE 16, 27 <63>; 46, 342 <394>). In such a situation, an exception may have to be made and it may be necessary to classify a foreign state’s activity as constituting an actus iure imperii subject to sovereign immunity, if this activity belongs to the core area of sovereign powers recognised by public international law (cf. BVerfGE 16, 27 <63 and 64>; 46, 342 <394>), even if that activity would be qualified as private under domestic law.

cc) In the present case, such an actus iure imperii exists even based on the notions of German domestic law. The issue of the dispute is the taxation of the claimant with Greek withholding tax by the Greek government, not the failure to fully pay (gross) wages owed by an employer under a private-law employment contract. Even under national law, the collection of taxes is a sovereign activity of the state. In order to raise revenue, the state imposes charges on the taxpayer unilaterally and without consideration of the performance of a particular activity. The charges are due solely depending on whether the characteristics on which the law bases liability for payment apply (§ 3(1) of the Fiscal Code, Abgabenordnung – AO; cf. also BVerfGE 67, 256 <282>; 93, 319 <346>). Under German law, the retention and transfer of income tax by the employer constitutes the fulfilment of an obligation under public law (§ 38(3) first sentence of the Income Tax Act, Einkommensteuergesetz – EStG; cf. BVerfGE 19, 226 <240>; 44, 103 <104>). In the present case, it may remain open whether the employer acts as a person entrusted with public power (Beliehener ) or in another role (cf. Drüen, Die Indienstnahme Privater für den Vollzug von Steuergesetzen, 2012, pp. 135 et seq.; Geißler, Der Unternehmer im Dienste des Steuerstaats, 2001, pp. 26 et seq.; G. Kirchhof, Die Erfüllungspflichten des Arbeitgebers im Lohnsteuerverfahren, 2005, pp. 44 et seq.). Pursuant to lex fori one may at any rate assume that the complainant acted in a sovereign role, which is confirmed by looking at the core area of government activities recognised under public international law. The collection of public levies is a sovereign activity in any political system, because it is only through the collection of revenues that a government is in a position to exercise public functions (cf. Kirchhof, in: Isensee/Kirchhof, Handbuch des Staatsrechts – HStR –, vol. V, 3rd ed. 2007, § 99 para. 99; Waldhoff, in: Isensee/Kirchhof, HStR, vol. V, 3rd ed. 2007, § 116 paras. 2 and 7).

dd) In the present case, one can also not assume that the complainant intended to become subject to German jurisdiction and therefore waived its sovereign immunity.

(1) The possibility of such a waiver is generally accepted (cf. BVerfGE 117, 141 <154> with further references). Sovereign immunity can be waived by a foreign state in an international treaty, a private contract, or in court for specific legal proceedings (cf. Dahm/Delbrück/Wolfrum, Völkerrecht, vol. I/1, 2nd ed. 1989, p. 469). At most, a state’s submissions on the merits of the case without procedural objections could be understood as an implied waiver of state immunity (cf. Dahm/Delbrück/Wolfrum, Völkerrecht, vol. I/1, 2nd ed. 1989, p. 470; see also Art. 3(1) first sentence of the European Convention on State Immunity of 16 May 1972 <BGBl II 1990 p. 34>). Moreover, under Art. 5(1) of the European Convention on State Immunity, a Contracting State cannot claim immunity from the jurisdiction of a court of another Contracting State if the proceedings relate to a contract of employment between the State and an individual and the work has to be performed on the territory of the State of the forum.

(2) However, none of these conditions is met in this case.

The European Convention on State Immunity, which has only been ratified by eight member states of the Council of Europe so far, but not by the complainant, has no effect regarding the complainant. In addition, the dispute at issue does not concern the employment contract concluded with the claimant in the initial proceedings, but the complainant’s right to impose taxes.

A waiver of sovereign immunity cannot be based on other reasons either. There was no such declaration in the judicial proceedings. To the contrary, the complainant repeatedly referred to its sovereign immunity. The employment contract between the complainant and the claimant lacks a relevant waiver which is, for example, common when issuing government bonds to private creditors (cf. BVerfGE 117, 141 <155>). Contrary to the view of the Federal Labour Court (para. 26 of the challenged decision), the claimant’s obligations under the employment treaty to pay taxes and social security contributions incurred in Germany may not be construed as an implied waiver of immunity. Even if one saw this differently, such waiver of immunity would not go beyond the specific employment contract to also cover the fiscal relationship between the complainant and the claimant in the initial proceedings. To the contrary: Recourse to the mutual agreement procedure under Art. XX(1) DTA, which provides for an agreement between the competent authorities of the Contracting States in cases of proven inadmissible double taxation, suggests that the complainant did not waive its immunity. Contrary to the view of the Federal Labour Court (para. 27 of the challenged decision), no legal recourse to the courts of a Contracting State is admissible.

ee) To the extent that the labour courts ruled in this case on the taxation of a Greek national by the Hellenic Republic, they effectively ruled on the substantive legality of the exercise of foreign state power in Germany at the same time. In the case at hand, they decided on the taxation of a Greek national in Germany by the Sending State [the Hellenic Republic], which the Federal Republic of Germany had permitted via Art. X(1) DTA under public international law – and thus violated the principle of sovereign immunity. Decisions issued in violation of the principle of sovereign immunity are void (cf. Decisions of the Federal Court of Justice in Civil Matters, Entscheidungen des Bundesgerichtshofs in Zivilsachen – BGHZ 182, 10 <16>, para. 20 with further references). The same must apply to the issuance of the court certificate of enforceability for such a judgment.

b) In the case at hand, the violation of the principle of sovereign immunity also leads to a violation of the complainant’s right to a lawful judge pursuant to Art. 101(1) second sentence GG.

aa) Not every erroneous transgression of the limits imposed on the regular courts amounts to a violation of Art. 101(1) second sentence GG (cf. BVerfGE 126, 286 <315>; BVerfG, Judgment of the Second Senate of 28 January 2014 – 2 BvR 1561/12, 2 BvR 1562/12, 2 BvR 1563/12, 2 BvR 1564/12 –, juris, para. 179; established case-law). Not every misapplication or non-observance of ordinary procedural law is also a violation of the Constitution, because the application of ordinary law would otherwise be raised to the level of constitutional law (cf. BVerfGE 82, 286 <299>). The line to unconstitutionality is only crossed if the – incorrect – interpretation and application of ordinary law are arbitrary (fundamentally BVerfGE 3, 359 <364 and 365>; 58, 1 <45>; 82, 286 <299>; 87, 282 <284>; 131, 268 <312>). Whether a court’s decision was based on arbitrariness, i.e. utter disregard for or gross misapplication of the law, or whether the decision suggests that the court fundamentally misunderstood the meaning and scope of the constitutional guarantee of Art. 101(1) second sentence GG, can only be assessed in light of the circumstances of the individual case (BVerfGE 131, 268 <312>).

bb) In the present case, there is such a fundamental misunderstanding of the meaning and scope of Art. 101(1) second sentence GG. Since the principle of sovereign immunity prohibits any judicial review of the sovereign acts of foreign states from the outset, a judicial decision in violation of this principle is seriously flawed and thus arbitrary; at least in cases concerning measures which belong to the core area of sovereign government activities recognised under public international law. As noted, this is the case in the present proceedings.

c) As far as the complainant additionally claims a violation of Art. 101(1) second sentence GG because of the lacking referral to the Federal Constitutional Court pursuant to Art. 100(2) GG, the issue does not have to be decided as the violation of Art. 101(1) second sentence GG has already been established on other grounds.

V.

Pursuant to § 95(1) first sentence BverfGG, the Court must declare that the challenged decisions violate Art. 101(1) second sentence GG. The challenged decisions must be reversed; the issue must be remitted to the Munich Labour Court (§ 93c(2) in conjunction with § 95(2) BVerfGG). The decision of the Munich Higher Labour Court of 20 December 2011 is thus without effect.

The decision on the reimbursement of expenses is based on § 34a(2) BVerfGG.