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On the admissibility of a concrete review of statutes regarding an Act transposing European Union law
Press Release No. 65/2011 of 26 October 2011
Order of 4 October 2011
1 BvL 3/08
The Investment Allowance Act (Investitionszulagengesetz - InvZulG) regulates the payment of State aid (investment allowances) for specific business investments in Berlin and the new federal Länder. The European Commission decided in May 1998 that national State aid schemes which ran counter to the specific Community guidelines which the Commission had previously established and the appropriate measures [for State aid in connection with investments] in the processing and marketing of agricultural products which it had simultaneously established were incompatible with the common market. According to the decision, specific investments in farms, including mills, are excluded from receiving subsidies. Germany was instructed in the decision, which was served on 2 July 1998, to accordingly amend, or where necessary abolish, existing aid schemes within two months. The requirement was transposed by the new provision, which came into force on 24 December 1998, contained in § 2 sentence 2 no. 4 InvZulG. Accordingly, certain commodities were not eligible in the processing and marketing of agricultural products which had been acquired or produced after 2 September 1998.
The plaintiff of the original proceedings runs a mill in the new federal Länder. On the basis of the new provision, the tax office refused to grant to the plaintiff an investment allowance for investments of DM 3.9 million on grounds that these had not been carried out until after 2 September 1998. With its action lodged against this, the plaintiff essentially claims a violation of the constitutional ban on retroactivity, arguing that the investment decisions in question had already been taken prior to 3 September 1998, and hence indeed prior to the proclamation of the new provision.
The Finance Court submitted the question for review to the Federal Constitutional Court as to whether the provision contained in § 2 sentence 2 no. 4 InvZulG is compatible with the rule-of-law ban on retroactivity in that it also covers investments with regard to which the investor had taken a binding investment decision prior to 28 September 1998 - the date on which the letter was published with which the Federal Government announced that it would be amending the Investment Allowance Act. The Finance Court argued that an investor enjoyed from the time of his or her binding investment decision protection of legitimate expectations against statutes retroactively restricting or rescinding the fiscal promotion of the investment; this confidence eligible for protection was said not to have ceased to exist until the Federal Government's letter had been published. It further argued that the retroactive effect linked with the new provision was constitutionally not justified and also not necessary according to the Commission's decision. According to the decision, an obligation existed with effect for the future only, but not to refuse to grant State aid for investments which had already been embarked on in the shape of binding investment decisions. Since the breach of the law was founded on national law, a submission to the European Court of Justice could not be considered.
The First Senate of the Federal Constitutional Court has ruled that the submission is inadmissible because the submitting Finance Court has not adequately clarified whether the legal provision which it judges to be unconstitutional is based on a requirement of European Community law that is binding on the German legislature, or whether latitude has been granted to the latter. The materiality of the submission for the decision has hence not been adequately set forth.
In essence, the decision is based on the following considerations:
1. An Act which transposes Union law can only be submitted to the Federal Constitutional Court for a ruling on its constitutionality if it is subject to review by the Federal Constitutional Court. As long as the European Union generally ensures effective protection of fundamental rights as against the sovereign powers of the Union which, in essence, is to be regarded as being substantially similar to the protection of fundamental rights provided by the Basic Law (Grundgesetz), the Federal Constitutional Court however no longer exercises its jurisdiction to decide on the applicability of Union law in Germany cited as the legal basis for any acts on the part of German courts or authorities, and hence no longer reviews such legislation by the standard of fundamental rights. Also, a domestic legal provision which transposes a directive or a decision into German law is not examined for compatibility with the fundamental rights of the Basic Law if Union law fails to leave to the German legislature any latitude in such transposition, but makes binding stipulations. In this case, the submission of a statute transposing Union law to the Federal Constitutional Court is inadmissible because the question as to its compatibility with the Basic Law is not material to the decision.
A court has hence to clarify prior to submitting the statute to the Federal Constitutional Court whether the German legislature was left with latitude in transposing Union law. In order to do so, if there is a lack of clarity regarding the implications of Union law, it must initiate preliminary ruling proceedings before the European Court of Justice, regardless of whether it is a court of final instance or not. There is an obligation under Union law to submit to the European Court of Justice exclusively for courts of final instance whose rulings themselves cannot be challenged with appeals of national law. If it is however unclear whether and to what degree Union law leaves latitude to the Member States, even instance courts are obliged, prior to making a submission to the Federal Constitutional Court, to initiate preliminary ruling proceedings to the European Court of Justice. This is a matter of ascertaining the power to review of the Federal Constitutional Court, and hence a preliminary question which absolutely must be clarified in order to render the review of statutes admissible.
Furthermore, in its reasoning for the submission, the submitting court must address the question of the latitude for transposition left to the national legislature, and must present sufficiently clearly the reasons for the materiality of its submission to the ruling.
2. The submission made by the Finance Court does not satisfy these prerequisites. It has not even dealt with the possibility of a restricted constitutional review by the Federal Constitutional Court. What is more, there is no adequate information regarding the extent of the binding effect of the Commission's decision. The statement that the Commission had only created a regulation for the future does not force one to conclude that it was to remain permissible to grant investment allowances on expiry of the two-month transposition period if a binding investment decision had already been taken prior to the expiry of the deadline. According to its wording, the Commission's decision, rather, stipulated that no more investment allowances were to be granted on expiry of the period, regardless of whether an investor had already made a binding investment decision or not. In view of this, the Finance Court already did not adequately portray the materiality of the submission to the ruling.
Moreover, it should have submitted the interpretation question that is relevant here for the existence of national latitude for transposition to the European Court of Justice in proceedings for a preliminary ruling because this cannot be answered beyond a doubt based on of the case-law of the European Court of Justice.