Constitutional complaint seeking payment of interest on unduly paid nuclear fuel tax unsuccessful

Press Release No. 65/2022 of 29 July 2022

Order of 30 June 2022
2 BvR 737/20

In an order published today, the Second Senate of the Federal Constitutional Court rejected a constitutional complaint concerning whether constitutional law requires the payment of interest on taxes in the amount of EUR 54,725,320, which were paid by the complainant in 2016 and subsequently refunded in 2017 following the Federal Constitutional Court’s decision to declare the Nuclear Fuel Tax Act (Kernbrennstoffsteuergesetz) void. The Court found that there was no constitutional obligation to add interest to the refunded amount.

Facts of the case:

The complainant operates a nuclear power plant. In accordance with the requirements of the Nuclear Fuel Tax Act, the complainant filed a tax return that calculated the tax payable at EUR 54,725,320. The Osnabrück Main Customs Office (Hauptzollamt) declared the tax assessment to be provisional, as at that time judicial review proceedings were pending before the Federal Constitutional Court regarding the compatibility of the Nuclear Fuel Tax Act with the Basic Law. On 25 July 2016, the complainant paid the tax. The complainant then filed an objection against the nuclear fuel tax assessment. No decision was rendered regarding the objection, but the complainant did not go on to file an action with the Finance Court (Finanzgericht).

In specific judicial review proceedings, the Second Senate of the Federal Constitutional Court found that the Nuclear Fuel Tax Act was incompatible with the Basic Law in its entirety, declaring it void by Order of 13 April 2017. Following that decision, the Main Customs Office revoked its tax assessment, thereby remedying the complainant’s objection. The amount of EUR 54,725,320 previously paid on the basis of the assessment was refunded to the complainant.

The complainant requested that interest be paid on this amount, specifically, interest at a rate of 0.5% for the ten full months between the payment of the tax on 25 July 2016 and the receipt of the refund on 19 June 2017, for a total of EUR 2,736,265. However, as the legislator did not provide for such claims for interest in the Fiscal Code (Abgabenordnung – AO), the Main Customs Office denied the request. The objection against this decision was unsuccessful. The Hamburg Finance Court rejected the action challenging the denial of the request for interest payment and did not allow an appeal on points of law (Revision). The Federal Finance Court (Bundesfinanzhof) rejected the complaint against denial of leave to appeal (Nichtzulassungsbeschwerde) as unfounded.

With its constitutional complaint, the complainant asserts a violation of its rights under Art. 14(1) of the Basic Law (Grundgesetz – GG) and under Art. 3(1) GG, each in conjunction with Art. 19(4) GG. The complainant argued that the reimbursement of the tax alone did not fully remedy the fundamental rights violation resulting from the levying of the unconstitutional nuclear fuel tax; constitutional law also required the payment of interest to compensate for the interference.

Key considerations of the Senate:

The challenged decisions of the authorities and the ordinary courts rejecting the claim for an interest payment sought in the initial proceedings do not violate the complainant’s fundamental rights.

1. The claim for interest does not follow directly from the Basic Law.

a) It is true that the levying of nuclear fuel tax on the basis of a law enacted in breach of the division of competences violated the complainant’s general freedom of action under Art. 2(1) GG. The general freedom of action includes the right to have to pay taxes only on the basis of legislation that is formally and substantively compatible with the Basic Law and is therefore part of the constitutional order.

b) The complainant’s entitlement to a refund of taxes paid as a result of the violation of fundamental rights has been fulfilled. Nevertheless, fundamental rights violations like those resulting from the Nuclear Fuel Tax Act, which was adopted in breach of the division of competences, may result in additional claims for compensation under constitutional law. In principle, fundamental rights also guarantee appropriate secondary claims when violations have occurred. Liability for state injustices is not just a manifestation of the principle of legality, but also follows from the particular fundamental rights that are affected, which are the central point of reference for the state’s obligation to assume liability. Fundamental rights not only protect the individual against unjustified state interferences with freedom and equality, they form the basis of claims against the state to refrain from or eliminate a given act, which ensure the effectiveness of fundamental rights protection. When it is not possible to make such claims prior to an interference, fundamental rights in principle also give rise to claims for compensation, such as claims for damages, indemnity or other similar redress.

c) However, this general guarantee does not mean that the Constitution itself gives rise to a specific right to secondary claims for interest, such as the claim for interest asserted in the initial proceedings. Rather, it is for the legislator to set out the manner and scope of secondary claims derived from fundamental rights and to give specific shape to such claims.

d) The constitutional guarantee in principle of secondary claims relating to fundamental rights violations does not entail an obligation on the part of the legislator to eliminate all consequences following from unconstitutional interferences on a retroactive basis. In specifying the manner and scope of specific secondary claims, the legislator is afforded a margin of assessment, appreciation and leeway. Typification (Typisierung) and generalisation are not only allowed, but actually required in order to operationalise secondary claims. Thus, it also falls to the legislator to decide whether and to what extent claims for interest should be included as an element of the compensation regime guaranteed by fundamental rights to adequately compensate for the consequences arising from an unconstitutional tax. If the legislator provides for claims for interest, it may enact typifying provisions when choosing the items on which interest is paid and determining the interest rate; it may also, to a significant degree, be guided by viability considerations to simplify the determination and payment of interest.

e) Secondary claims for compensation relating to fundamental rights violations do not follow from Art. 19(4) GG. Rather than guaranteeing the existence or substance of protected legal interests as such, Art. 19(4) GG presumes that protected legal interests exist as a prerequisite for exercising this right.

f) The non-recognition of an obligation to provide comprehensive compensation for every financial disadvantage – even for those only indirectly related to a fundamental rights violation – is in accordance with the values of the European Convention on Human Rights and the case-law of the European Court of Human Rights. These, according to the case-law of the Federal Constitutional Court, serve as guidelines for interpretation when determining the contents and scope of fundamental rights. It is evident from the wording of Art. 41 of the Convention that even when a violation of the Convention or the Protocols thereto has been found, just satisfaction is not afforded to the injured party in each case, but only where necessary.

2. The legislative decision not to provide for an interest claim in the Fiscal Code is not unconstitutional.

a) If the legislator provides for reimbursement claims in the nominal amount of the taxes paid in cases where the levying of a tax was unconstitutional, the principles underlying the constitutional compensation claim generally do not require further compensation beyond reimbursement of the tax paid. This would apply to refunds made within a few years – not after decades – at least in low interest rate and low inflation environments. Once the tax has been refunded, there is generally no impairment of fundamental rights that is significant under constitutional law left that would have to be compensated. In the present case, the nuclear fuel tax paid unduly by the complainant was reimbursed within a time period of only ten months. As the period in question was characterised by low interest rates, there was no imposition on the legislator to recognise an obligation to pay interest on the tax refunds.

b) The fact that the legislator did not provide for general interest payments on nuclear fuel tax refunds also does not violate the general guarantee of the right to equality under Art. 3(1) GG.

aa) The general guarantee of the right to equality requires that the legislator accord equal treatment to matters that are essentially alike, and treat unlike matters differently. However, the right to equality does not require different treatment of tax refunds following the declaration of voidness of an unconstitutional law – such as in the case of the nuclear fuel tax – on the one hand, and tax refunds following a “mere” declaration of incompatibility of an unconstitutional law on the other hand, such that anyone affected by a law declared void must be granted interest, regardless of whether proceedings concerning the individual tax assessment were pending and so long as the assessment was not yet subject to a final decision. That a law has been declared void does not mean that the violation of constitutional law was especially serious or manifest, conversely, a declaration of incompatibility does not mean that the violation of constitutional law was “minor”. There is no constitutional obligation to treat the two cases differently.

bb) Nor does Art. 3(1) GG require that the legislator grant interest relating to legal proceedings to those – like the complainant – that are eligible for a tax refund and receive a tax refund pursuant to § 37(2) AO without ever facing any litigation risk. The legislator created the possibility of provisional tax assessments in § 165(1) AO so that taxpayers would benefit from new or amended legislation or (constitutional) court decisions favouring them, without putting too much strain on the administrative authorities and the judiciary. If a tax assessment is declared to be provisional, taxpayers do not have to keep their cases open through legal remedies in order to benefit from new or amended legislation or court decisions. Consequently, when those eligible for a tax refund do not pursue legal remedies, no interest relating to legal proceedings is paid; this is within the legislator’s discretion and power to typify.

3. The way the ordinary courts interpreted and applied the legal provisions in question in the challenged decisions also does not violate the Basic Law. In respecting the legislator’s decisions giving specific shape to the matter in question, rather than replacing these decisions with their own notions of fairness, the ordinary courts observed the rule of law principle that judges are bound by the law.