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Tax after Brexit

The Withdrawal Agreement means that different rules apply on VAT and excise apply to Northern Ireland.


Why will VAT be affected by Brexit?


Value Added Tax (VAT) is a tax on the consumption of goods and services. In general, a business charges its customers VAT on its sales (output tax). It then remits the VAT it has collected to the national tax authority, offsetting the VAT it has paid to its own suppliers (input tax). In this way, at each stage in a good or service’s production, tax is collected on the value added at that stage.

The UK was obliged to introduce VAT when it joined the European Economic Community (EEC) in 1973. VAT broadly replaced a purchase tax on luxury goods. The six original members of the EEC harmonised their VAT regimes[1] to reduce the distortion of export refunds, which gave member states a potential competitive advantage over one another and produced economically distortionary effects.

The UK VAT system operates within parameters set by EU VAT directives, a system that only applies to EU member states. Typically EU VAT directives[2] do not apply to members of the European Economic Area (EEA). 

At the end of the transition period, the UK will leave the VAT area. However, under the terms of the Withdrawal Agreement, Northern Ireland will remain fully aligned with the EU’s VAT rules on goods. The UK government will be responsible for implementing these rules in Northern Ireland and the UK will retain any revenue raised, rather than passing it on to the EU as now.


Would the UK abolish VAT after Brexit?


In theory the UK could abolish VAT after Brexit, but in practice it is very unlikely. VAT is a major revenue raiser[3], forecast to raise approximately £125bn in 2017/18, which amounts to 18% of tax receipts.

VAT is also the International Monetary Fund's “tax of choice” and over 160 countries have now introduced it – it accounts for 20% of tax revenue globally. The UK has been party to the internationally agreed standards of the OECD International VAT/GST guidelines[4] and is unlikely to reject this approach.

The government’s technical guidance for businesses preparing for the end of transition indicates the government plans to continue to have a VAT system in the UK.[5]


Will the UK change its VAT regime after Brexit?


The UK could, depending on the terms of the final agreement, gain more flexibility on the structure of VAT after Brexit.

The current constraints include:

  • The UK can maintain its existing zero rates[6] on items such as most food, children’s clothes and shoes, and books, agreed as part of its original accession deal to the EEC. But it cannot create new zero-rated items and if it moves an item out of the zero rate band it cannot move it back.
  • There is a prescribed list of goods and services that EU member states can subject to a reduced rate of VAT. This is set at a minimum of 5% with only two reduced rates allowed.
  • The minimum standard rate of VAT is set at 15%. There is currently no maximum, but the European Parliament has passed an amendment proposing a cap at 25% (the current highest rate being 27%). The current UK standard rate is 20%.
  • Member states cannot levy a rate of VAT that is higher than the standard rate - so the UK cannot, for example, have a luxury goods rate.                              

The EU has become increasingly concerned that intra-EU trade has become a major source of fraud and it plans to move to a single EU VAT area[7] which would see a fundamental shift in the way VAT is accounted for. Measures have recently been agreed to reform the VAT[8]system, including proposals for more flexible VAT rates[9]. It remains to be seen to what extent the UK will adopt these measures in its own system.

The potential flexibility created by Brexit means UK ministers may come under more pressure to lower VAT rates or remove and reform exemptions and reduced rates. This could lead to further complexity and is likely to be politically challenging.

But this flexibility could open the way to more radical reform like a lower standard rate of VAT on everything. For example, the Goods and Services Taxes of New Zealand and Australia apply a single rate of 15% and 10% respectively, with far fewer exceptions. But there would be many potential winners and losers from such reform.

The UK already has a comparatively high registration threshold for VAT at £85,000, which has been fixed until April 2022 whilst the government consults on the recommendations from the Office of Tax Simplification.[10]

VAT law is interpreted, ultimately, by the Court of Justice of the European Union which is binding on the UK. Post-Brexit, this will change, although the UK’s courts may need to take account of previous CJEU’s decisions when deciding VAT cases. How this will affect the interpretation and direction of the UK’s case law remains to be seen, especially when dealing with general VAT principles that have evolved over several decades.

In Northern Ireland, the UK government will be only be able to change VAT rates on goods in line with EU rules. It may also apply VAT exemptions and reductions, including zero rating, to goods in Northern Ireland if they are also applicable in the Republic of Ireland.


How will the operation of VAT change after Brexit?


The big change after Brexit will be how VAT is charged on trade with the remaining 27 member states. The scale of change will be contingent on the final negotiated outcome.

In normal domestic transactions, the seller charges the buyer VAT and then pays the money collected to the tax authority. At the moment, for EU transactions, VAT is generally not charged on the supply of goods between businesses from another European country by the supplier. Instead, a business recipient is generally required to charge itself VAT, known as acquisition VAT, which is typically an accounting transaction on the VAT return. There are different rules for private customers and other exceptions. For services, the ‘place of supply’ rules determine the country in which VAT is charged and accounted for.


How will VAT on cross-border goods change?


When the UK leaves the EU VAT area, it will become a third country. This means that the way businesses manage VAT on goods and services exported and imported to/from the EU will change. Sellers will not charge VAT, but buyers will have to pay VAT to HMRC at the point of import (alongside any applicable customs duties).

The payment of VAT at the border will have potential cash flow consequences[11] which the UK government proposes to mitigate  for imports, through the introduction of postponed accounting for import VAT. This would shift the VAT accounting and payment away from the border to the VAT return. Postponed accounting would also apply to rest of the world imports, not just those from EU countries.[12]


How will VAT work in Northern Ireland?


The Withdrawal Agreement means that the rules on cross-border VAT will be different in Northern Ireland. Northern Ireland and the rest of the EU will continue to be treated as now for VAT purposes: for business-to business transfers, exports (technically despatches) will be exempt from VAT, which the purchaser of the good or service will pay at the rate applicable where they live. But there will be a new VAT border in the Irish Sea, because the rest of the UK will be outside the EU VAT area. This means that Northern Ireland customers buying goods from Great Britain will have to pay VAT to HMRC when they import the goods, rather than to their supplier (who would then pass the tax on to HMRC). In practice, the introduction of postponed accounting means this may not make much difference.

Some businesses will have to make import-export declarations for the first time – a change that may affect between 145,000 and 250,000 businesses[13] who conduct their trade solely between the UK and EU27. A further 73,000 businesses[14], who trade with both EU and non-EU countries, will have to make declarations for their UK-EU trade in addition to their non-EU trade. 

EU member states will require VAT to be paid on importation[15] unless they introduce a deferral mechanism. UK businesses exporting to the EU may need to engage VAT representatives in different countries to comply with EU VAT obligations.  Businesses wishing to claim a refund of overseas VAT will no longer have access to the EU VAT Refund Portal, and are likely to face longer waiting periods to be refunded according to Daniel Lyons of Deloitte.[16]

Individuals and overseas businesses will also be affected as the rules for parcels entering the UK will change. Low Value Consignment Relief – for parcels valued as £15 or less – will be scrapped[17] on parcels arriving from the EU.[18]


How will VAT on services change?


There has been little detail from the government about how services will be dealt with.  The EU VAT rules governing services depend upon the nature of the service provided, who receives the service and the location of the service. Certain rules regarding the export of financial services are under consideration.

UK suppliers of digital services to EU non-business consumers using the EU’s online Mini One-Stop Shop (MOSS) scheme will have to change to the ‘non-Union’ scheme to account for their sales. The MOSS allows non-established service suppliers to file a single VAT return – documenting their sales by member state of consumption – in only one member state. This return is then distributed to the relevant member states so VAT can be levied accordingly. Businesses established in non-EU countries who use the UK for their MOSS VAT return will have to move their MOSS identification to an EU27 member state to continue using the non-Union MOSS scheme.



  1. European Commission, What is VAT?,
  2. EUR-Lex, The EU’s common system of value added tax,
  3. Miller H and Roantree B, Tax revenues: where does the money come from and what are the next government’s challenges?, Institute for Fiscal Studies, 1 May 2017, retrieved on 18 March 2020,
  4. HMRC, ‘Changes to VAT treatment of overseas goods sold to customers from 1 January 2021’, Policy Paper, 5 October 2020, retrieved 22 October 2020,
  5. OECD, International VAT/GST Guidelines, 12 April 2017, retrieved on 18 March 2020,
  6. GOV.UK, Businesses and charging VAT, retrieved on 18 March 2020,
  7. European Commission, Single VAT Area,
  8. European Commission, ECOFIN: Commission welcomes progress achieved on the road to a reformed EU VAT system, press release, 2 October 2018, retrieved on 18 March 2020,
  9. European Commission, VAT: More flexibility on VAT rates, less red tape for small businesses, press release, 18 January 2018, retrieved on 18 March 2020,
  10. HM Treasury, Office of Tax Simplification, and The Rt Hon Philip Hammond, Letter from the Chancellor to the Office of Tax Simplification (OTS), GOV.UK, 22 November 2017, retrieved on 18 March 2020,
  11. Sweet P, Concerns over cashflow impact of post-Brexit VAT regime, Accountancy Daily, 9 January 2018, retrieved on 18 March 2020,
  12. HMRC, ‘Check when you can account for import VAT on your VAT return from 1 January 2021’, Guidance, 27 July 2020, retrieved 22 October 2020.
  13. House of Commons Exiting the European Union Committee, Oral evidence: The progress of the UK’s negotiations on EU withdrawal, HC 372, 17 October 2018, retrieved on 18 March 2020,
  14. HM Revenue and Customs, 2017 UK VAT Registered Importer and Exporter Population – Trade in Goods, GOV.UK, 2018, retrieved on 18 March 2020,
  15. European Commission, Withdrawal of the United Kingdom and EU rules in the field of value added tax, 11 September 2018, retrieved on 18 March 2020, 
  16. Deloitte, Deloitte comments on the ‘no-deal’ Brexit notice regarding VAT, press release, 24 August 2018, retrieved on 18 March 2020,
  17. HM Revenue and Customs, HM Treasury, Driver and Vehicle Licensing Agency, Border Force, Department for Work and Pensions, Office of Tax Simplification, and the Scottish Government, Business tax: VAT, GOV.UK, retrieved on 18 March 2020,
  18. Cabinet Office, ‘The Border with the European Union: Importing and Exporting Goods’, 13 July 2020 (updated 8 October 2020),
International treaty

Agreements reached between the United Kingdom of Great Britain and Northern Ireland and the European Union

The Trade and Cooperation Agreement and other agreements below are provided for information only. No rights may be derived from them until the date of application. The numbering of the articles is provisional. More information you find here:



In the opinion of the Federal Finance Court, the full address of the supplier on an invoice must be the one under which he develops his economic activity. The deduction of input tax must therefore only be granted if, in addition to the material requirements, the formal requirements are also met and if, in addition, an economic activity of the taxpayer is carried out at his address. However, the Federal Finance Court had doubts about the conformity of this formalistic approach with EU law after the ECJ ruling of 22 October 2015, C-277/14, PPUH Stehcemp, in which the ECJ ruled that a taxpayer may not be denied the right to deduct input tax solely because the invoice was issued by a "non-existent economic operator".


Now the Federal Finance Court wanted to know whether a letterbox invoice is sufficient for the input tax deduction ?


 As a preliminary point, it should be recalled that, pursuant to Article 178(a) of the VAT Directive, in order to exercise the right of deduction, a taxable person must hold an invoice drawn up in accordance with Articles 220 to 236 and Articles 238 to 240 of that directive.


Article 226 of that directive lists the details which must appear on such an invoice. Article 226(5) lays down, in particular, the requirement to indicate the full name and address of the taxable person and of the customer.


 In accordance with the case-law of the Court, in interpreting a provision of EU law, it is necessary to consider not only its wording but also the context in which it occurs and the objectives pursued by the rules of which it forms part.

As regards the wording of Article 226(5) of the VAT Directive, it should be noted that it offers different possibilities of interpretation in the various languages.


However, the absence or presence of the adjective ‘full’ in the wording of that requirement does not provide guidance as to whether the address indicated on the invoice must correspond to the address where the issuer of the invoice carries out its economic activity.


Furthermore, it should be stated that the ordinary meaning of the term ‘address’ is broad. As the Advocate General noted in his Opinion, the usual meaning of that term covers any type of address, including a ‘letterbox address’, provided that the person may be contacted at that address.


Moreover, Article 226 of the VAT Directive states that, without prejudice to the particular provisions of that directive, only the details mentioned in that article are required for VAT purposes on invoices issued pursuant to Article 220 of that directive.


It follows that the requirements relating to those details must be interpreted strictly since it is not possible for Member States to lay down more stringent requirements than those under the VAT Directive.


Consequently, it is not open to Member States to make the exercise of the right to deduct VAT dependent on compliance with conditions relating to the content of invoices which are not expressly laid down by the provisions of the VAT Directive.


In the second place, with regard to the context of which Article 226 of the VAT Directive forms part, it should be recalled that the right to deduct VAT may not, in principle, be limited.


The Court has held, in that regard, that holding an invoice showing the details referred to in Article 226 of the VAT Directive is a formal condition of the right to deduct VAT. The deduction of input VAT must be allowed if the substantive requirements are satisfied, even if the taxable persons have failed to comply with certain formal conditions. It follows that the detailed rules regarding the indication of the address of the issuer of the invoice cannot be a decisive condition for the purposes of the deduction of VAT.


In the third place, as regards the teleological interpretation of Article 226 of the VAT Directive, the purpose of the details which must be shown on an invoice is to allow the tax authorities to monitor the payment of the tax due and the existence of a right to deduct VAT.


In that respect, as the Advocate General noted, in essence, the aim of indicating the address, name and VAT identification number of the issuer of the invoice is to make it possible to establish a link between a given economic transaction and a specific economic operator, namely the issuer of the invoice. The identification of the issuer of the invoice allows the tax authorities to check whether the amount of VAT giving rise to the deduction has been declared and paid. Such identification also allows the taxable person to check whether the issuer of the invoice is a taxable person for the purposes of the VAT rules.


In that regard, it should be noted that the VAT identification number of the supplier of the goods or services is an essential piece of information in that identification. That number is easily accessible and verifiable by the tax authorities.


Moreover, as the Advocate General noted in his Opinion, in order to obtain a VAT identification number, undertakings must complete a registration process in which they are required to submit a VAT registration form, along with supporting documentation.

It follows that the aim of indicating the address of the issuer of the invoice, in conjunction with his name and VAT identification number, is to identify the issuer of the invoice and thus to enable the tax authorities to carry out the checks referred to.


In that context, it should also be pointed out that the Court has held that the deduction system is intended to relieve the trader entirely of the burden of the VAT payable or paid in the course of all its economic activities. In order to achieve the objectives pursued by that system, it is not necessary to lay down an obligation to indicate the address where the issuer of the invoice carries out its economic activity.

It follows that, for the purposes of the exercise of the right to deduct VAT by the recipient of goods or services, it is not a requirement that the economic activities of the supplier be carried out at the address indicated on the invoice issued by that supplier.


 Consequently, the answer to the first question in Case C‑374/16 and the first and second questions in Case C‑375/16 is that Article 168(a) and Article 178(a) of the VAT Directive, read in conjunction with Article 226(5) thereof, must be interpreted as precluding national legislation, such as that at issue in the main proceedings, which makes the exercise of the right to deduct input VAT subject to the condition that the address where the issuer of an invoice carries out its economic activity must be indicated on the invoice.



In other words, the right to deduct may not be made subject to the condition that the issuer of the invoice actually carries out his economic activity at the address indicated on the invoice. Consequently, the indication of a letterbox seat is also a "complete address" within the meaning of Paragraph 14 (4) Number. 1 of the law on Vat (=UStG), which is entitled to deduct input tax if the material conditions for input tax deduction are met.


European Court of Justice: Judgment of 15. November 2017, C‑374/16 und C‑375/16


In the course of its activities as a used car dealer, B carried out transactions which were subject to differential taxation pursuant to Paragraph 25 of the Law on VAT.

(Law on Vat=UStG)


On the basis of the fees he received, he calculated a turnover of 27,358 euros for 2009 and 25,115 euros for 2010.

In his VAT returns of 10 February 2010 (for 2009) and 23 March 2011 (for 2010), B assumed that he could rely on his status as a "small entrepreneur" within the meaning of Paragraph 19 of the Law on VAT, since his turnover for 2009 was 17,328 euros and for 2010 17,470 euros. B did not calculate these sales on the basis of his fees received, but on the basis of his profit margin in accordance with Paragraph 25a(3) of the Law on VAT.


The tax office initially approved the B for 2009. Nevertheless, in 2012 it refused to submit a VAT return for the years 2009 and 2010 because, as a result of the new application of the VAT Application Decree of 1 October 2010, VAT is not calculated on the basis of the gross margin but on the basis of the fees received.

For B, this would mean paying VAT, which is why the subject of the dispute even reached as far as the European Court of Justice (ECj).

The ECJ therefore had to clarify whether the new VAT application decree had been interpreted in conformity with Article 288(1) Number. 1 of the VAT Directive. Accordingly, it is to be determined whether in this case the turnover tax is to be determined in favour of B according to the trade margin, or whether the collected fees are to be determined to his disadvantage.


First, as regards the literal interpretation of Article 288(1) Number. 1 of the VAT Directive, it must be stated that, according to the wording of that provision, the turnover of the taxable person is composed of the total amount, net of VAT, of taxed supplies of goods and services, the word "taxed", however, not referring to the word "amount", but to "supplies" or "services".


Therefore, a literal interpretation of Article 288(1) Number. 1 of the VAT Directive implies that the total amount of supplies carried out by taxable resellers and not their margin constitutes the turnover to be taken into account for the purposes of applying the special scheme for small businesses.


That interpretation is confirmed by the system, history and objective of the VAT Directive. These are not further explained here.

In any event, with regard to the objective of the special scheme for small businesses, the Court has held that, by Article 288(1) Number. 1 of the VAT Directive, the Union legislature intended to reduce the accounting requirements imposed by the normal VAT system (judgment of 6 March 1999 in the case of the Court of First Instance). (Judgment of 6 October 2005, MyTravel, C 291/03, EU:C:2005:591, recital 39),


whereby these administrative simplifications are intended in particular to promote the creation and operation of small enterprises and strengthen their competitiveness (Judgments of 26 October 2010, Schmelz, C 97/09, EU:C:2010:632, recital 63, and of 2 May 2019, Jarmuškienė, C 265/18, EU:C:2019:348, recital 37).


In this respect, the German Government agrees that the aim of the special scheme for small enterprises is not to strengthen the competitiveness of large companies active as resellers of second-hand goods. If the fees received in excess of the mark-up were not taken into account in determining turnover for the purposes of applying this special scheme, companies with a high turnover and a low mark-up would be able to benefit from the special scheme and thus gain an unjustified competitive advantage.

In the light of the foregoing, the ECJ replies to the question referred that Article 288(1) Number. 1 of the VAT Directive must be interpreted as meaning that, in determining turnover tax for small businesses, the amounts collected are to be taxed and not the gross margin.

Finally, it follows from the judgment that the tax office was proved right and that B must pay turnover tax.

European Court of Justice: Judgment of 19 December 2018, C‑552/17



All Spanish professional football clubs were required to convert to sports public limited companies (‘SPLC’ or ‘SPLCs’) by a law of 1990, in order to encourage more responsible management of their activities. An exception was, however, laid down: professional sports clubs which had achieved a positive result for the tax years preceding the adoption of the law were permitted to continue to operate as sports clubs.
Four Spanish professional football clubs — the Fútbol Club Barcelona (Barcelona), the Club Atlético Osasuna (Pamplona), the Athletic Club (Bilbao) and the Real Madrid Club de Fútbol (Madrid) — chose that option. Accordingly, as non-profit organisations and in contrast to SPLCs, their income was taxed at a specific rate that was, until 2016, lower than the rate applicable to SPLCs.

By a decision of 2016, the Commission declared that Spain had unlawfully implemented State aid in the form of a corporation tax privilege in favour of those four professional football clubs. According to the Commission, that regime was incompatible with the internal market. It therefore ordered Spain to discontinue the scheme and to recover the aid granted from the recipients immediately and effectively.

The Fútbol Club Barcelona and the Athletic Club brought an action against the Commission’s decision before the General Court of the European Union.

By today’s judgment in Case T-865/16, Fútbol Club Barcelona v Commission, the General Court annuls the Commission’s decision. However, Athletic Club’s action in Case T-679/16 has been dismissed.

The Court first states that the examination of a State aid regime must include, an examination of its various consequences, both favourable and detrimental to its recipients, when the equivocal nature of the alleged advantage is a result of the very features of the regime.

The Court points out that the measure caught by the contested decision is a restriction, in the Spanish professional sports sector, of the personal scope of the tax regime of non-profit organisations in force when the law of 1990 was adopted. It therefore examines whether the Commission sufficiently demonstrated that the tax regime of non-profit organisations, taken as a whole, was such as to put its recipients in a more advantageous position than if they had been required to operate as an SPLC.

The Court observes that, as stated by the Commission in its decision, a nominal preferential — as compared to the clubs operating as SPLCs — tax rate was applied, from 1990 to 2015, to the four clubs which benefit from the regime at issue.
However, the examination of the resulting advantage cannot be dissociated from that of the other components of the tax regime of non-profit organisations. The Court points out in that regard, inter alia, that during the administrative procedure carried out by the Commission, the Real Madrid Club de Fútbol had observed that the tax deduction for the reinvestment of extraordinary profits was higher for SPLCs than for non-profit entities.
The Madrid club claimed that that deduction was potentially very significant due to the practice of player transfers, as profits could be reinvested in the purchase of new players and that the tax regime applicable to non-profit organisations had thus been, between 2000 and 2013, ‘significantly more disadvantageous’ to it than that applicable to SPLCs.

Nonetheless, the Commission had ruled out that the relative advantage relating to the higher threshold of tax deductions applicable to SPLCs offsets the preferential tax rate enjoyed by nonprofit organisations, on the ground, in particular, that it had not been demonstrated that that system of tax deductions ‘[was] in principle and in the longer term more advantageous’. However, according to the Court, the Commission, which bore the burden of proof of the existence of an advantage resulting from the tax regime of non-profit entities, could find that such an advantage exists only by demonstrating, without prejudice to the limits of its investigative obligations, that the ceiling on tax deductions set at a less advantageous level for non-profit entities than for SPLCs did not offset the advantage resulting from a lower nominal tax rate.

The Commission also supported its findings by figures contained in a study provided by Spain during the administrative procedure. It asserted on that basis that, for most of the tax years, the effective taxation of professional football clubs as non-profit organisations was lower than that of comparable entities under the general tax regime. However, the figures related to aggregate data, all sectors and operators included, and related to only four tax years, whereas the period concerned by the regime at issue ran from 1990 to 2015. The Court finds that the Commission erred in its assessment of the facts.

The Court next ascertains whether, despite that error, the Commission was entitled to rely on just the data provided by Spain in order to find that an advantage existed. The Court observed that those data should have been examined in the light of the other factual evidence submitted to the Commission, like the statements submitted by the Real Madrid Club de Fútbol concerning the importance of the tax deductions for professional football clubs, connected to player transfers. According to the Court, the Commission was therefore, when it adopted its decision, in possession of evidence highlighting the specific nature of the sector as regards tax deductions, which should have led to its having doubts as to whether its findings — all sectors included — on the effective taxation of non-profit entities and entities subject to the general tax regime, respectively, could be applied to that sector. Accordingly, the Court holds that the Commission has not shown to the requisite legal standard that the measure at issue conferred an advantage on its beneficiaries.

 Press release:



If you wish to become active as a cross-border company, by setting up companies or permanent establishments or by participating in companies, you have certain notification obligations.
This is regulated by law in 138 passage 2 AO. From the point of view of the tax authorities, this serves to ensure the appropriate tax registration and monitoring.
Please note: in a current letter (, the Federal Ministry of Finance points out that the officially prescribed form for submitting notifications has been changed. The new form, together with explanations, is attached to the Federal Ministry of Finance's Letter as an annex.



The Prosecutor General of Lithuania does, however, provide such a guarantee of independence

Two Two Lithuanian nationals and one Romanian national are challenging, before the Irish courts, the execution of European arrest warrants issued by German public prosecutor’s offices and the Prosecutor General of Lithuania for the purposes of criminal prosecution. They are accused of crimes described as murder and grievous bodily injury (OG), armed robbery (PF) and organised or armed robbery (PI).

The three people concerned claim that the German public prosecutor’s offices and the Prosecutor General of Lithuania are not competent to issue a European arrest warrant on the ground that none is a ‘judicial authority’ within the meaning of the framework decision on the European arrest warrant1. OG and PI claim, inter alia, that the German public prosecutor’s offices are not independent of the executive since they are part of an administrative hierarchy headed by the Minister for Justice, so that there is a risk of political involvement.

The Supreme Court (Ireland) and the High Court (Ireland) ask, in that context, the Court of Justice for an interpretation of that framework decision. In light of the fact that PI is, on the basis of the European arrest warrant issued in respect of him, in custody in Ireland, the Court of Justice acceded to the High Court’s request that the case be dealt with under the urgent preliminary ruling procedure.

In today’s judgments, the Court of Justice holds that the concept of an ‘issuing judicial authority’, within the meaning of the framework decision, does not include public prosecutor’s offices of a Member State, such as those of Germany, which are exposed to the risk of being subject, directly or indirectly, to directions or instructions in a specific case from the executive, such as a Minister for Justice, in connection with the adoption of a decision to issue a European arrest warrant.
However, that concept includes the Prosecutor General of a Member State, such as that of Lithuania, who, whilst institutionally independent of the judiciary, is responsible for the conduct of criminal prosecutions and whose legal position affords him a guarantee of independence from the executive in connection with the issuing of a European arrest warrant. 

The Court notes, first of all, that the European arrest warrant is the first concrete measure in the field of criminal law implementing the principle of mutual recognition, which is itself based on the principle of mutual trust between the Member States. Both principles are of fundamental importance given that they allow an area without internal borders to be created and maintained.

The principle of mutual recognition proceeds from the assumption that only European arrest warrants which meet the requirements of the framework decision must be executed. Thus, since a European arrest warrant is a ‘judicial decision’, it must, in particular, be issued by a ‘judicial authority’.

Although, in accordance with the principle of procedural autonomy, the Member States may designate, in their national law, the ‘judicial authority’ with the competence to issue a European arrest warrant, the meaning and scope of that term cannot be left to the assessment of each Member State, but must be the same throughout the EU.

It is true that the concept of a ‘judicial authority’ is not limited to designating only the judges or courts of a Member State, but must be construed as designating, more broadly, the authorities participating in the administration of criminal justice in that Member State, as distinct from, inter alia, ministries or police services which are part of the executive.

According to the Court, both the German public prosecutor’s offices and the Prosecutor General of Lithuania, which have an essential role in the conduct of criminal proceedings, are capable of being regarded as participating in the administration of criminal justice.

However, the authority responsible for issuing a European arrest warrant must act independently in the execution of its functions, even where that arrest warrant is based on a national arrest warrant issued by a judge or a court. It must, in that capacity, be capable of exercising its functions objectively, taking into account all incriminatory and exculpatory evidence, without being exposed to the risk that its decision-making power be subject to external directions or instructions, in particular from the executive, so that it is beyond doubt that the decision to issue a European arrest warrant lies with that authority and not, ultimately, with the executive.

As regards the public prosecutor’s offices in Germany, the Court finds that legislation does not preclude their decisions to issue a European arrest warrant from being subject, in a given case, to an instruction from the Minister for Justice of the relevant Land. Accordingly, those public prosecutor’s offices do not appear to meet one of the requirements of being regarded as an ‘issuing judicial authority’, within the meaning of the framework decision, namely the requirement of providing the judicial authority responsible for execution of an European arrest warrant with the guarantee that they act independently in issuing it.

Nevertheless, it appears that the Prosecutor General of Lithuania may be considered to be an ‘issuing judicial authority’, within the meaning of the framework decision, in so far as his legal position in that Member State safeguards not only the objectivity of his role, but also affords him a guarantee of independence from the executive in connection with the issuing of a European arrest warrant. However, it cannot be ascertained from the information in the case file before the Court whether a decision of the Prosecutor General of Lithuania to issue a European arrest warrant may be the subject of court proceedings which meet in full the requirements inherent in effective judicial protection, which it is for the Supreme Court to determine.

The punishment of undeclared work or services abroad might lead to unpleasant impacts. Some countries have massively increased their controls. But how do I prove that everything is right? Within the EU, the EEA and Switzerland, this is done by means of the A1 certificate. It must be carried with you in every professional activity abroad, regardless of the duration.
But how to obtain it and is this even practicable for short business trips or seminars?
The A1 certificate
Within the EU, the EEA and Switzerland, the A1 certificate serves the employee as proof to the foreign insurance institution which social security system is responsible for him and which social insurance protection exists in Germany. It must be carried abroad regardless of the duration of the professional activity. It therefore makes no difference whether it is a meeting lasting several hours, a further training course, a conference lasting several days or a longer work assignment. Any crossing of the border for professional reasons requires a certificate.
What happens during an inspection?
If the A1 certificate is not carried abroad, the employee must in principle be subject to the legal provisions in force in the country of employment. If the employee cannot present this certificate in the event of an inspection abroad, his employment can be regarded as an uninsured activity and thus as undeclared work. This can result in the employee having to stop work immediately or not having access to a factory site, for example, from the outset.
How do I get the A1 certificate?
Since 01.01.2019, employers have to apply electronically to the competent institution for an A1 certificate to be issued (§ 106 SGB IV, Art. 12 Passage 1 EU Regulation (EC) 883/2004); the paper procedure can only be used in exceptional cases. The responsible institution depends on whether the employee is legally insured or not.
In the case of persons with statutory insurance, the application must be submitted to the health insurance fund with which the employee is insured. This applies regardless of whether compulsory insurance, voluntary insurance or family insurance exists.
If the employee is not covered by the mandaory health insurance, the application must be submitted to the statutory pension insurance institution (DRV Bund, DRV Knappschaft Bahn-See or the responsible regional DRV institution).
If there is no statutory health insurance and there is an exemption from the pension insurance obligation due to membership in a professional pension institution, the application has to be send to the Arbeitsgemeinschaft Berufsständischer Versorgungseinrichtungen e.V. (Association of Professional Pension Institutions). (ABV), Postfach 080254, 10002 Berlin.
The application should be submitted as early as possible, since the employee must always carry the A1 certificate with him at the beginning of his stay abroad. By the way, it is not possible to apply for a flat-rate certificate for all member states. However, it is possible to apply for the A1 certificate for the employee to be issued for several countries.
How quickly do I get the A1 certificate?
The re-registration can also be done electronically. The A1 certificate is then transmitted automatically. By law, health insurance funds and pension insurance institutions have three working days to send the electronically applied for certificate to the employer, provided that the German legal provisions apply.
The employee must receive the original certificate and always carry it or her during his or her work abroad. Of course, a copy should be stored in the personnel file of the seconded employee. It is useful to send a copy to the company abroad where the employee works. This also applies to secondment certificates in countries with which Germany has concluded a social security agreement.
Do I also need the certificate for short business trips?
On 19 March 2019, the European Parliament and the Council reached agreement at least once at political level on the modernisation of the rules on the coordination of social security systems. Under this agreement, no A1 certificate will be required for business trips in future. However, the Council and Parliament still have to formally adopt the agreement, which will probably take place in this legislative period, according the Bundesverband der freien Berufe (BFB) reported recently.



A taxpayer may simultaneously have several residences within the meaning of § 8 AO. A domestic residence can also lead to an unlimited income tax liability of the taxpayer if the centre of his life interests is abroad.

Because in the provision § 8 AO contains no indication for a differentiation between a "main residence" and a "secondary residence". This also excludes the assumption that only a "qualified" residence leads to unlimited tax liability. In this respect, the only decisive factor is whether objectively identifiable circumstances indicate that the taxpayer retains the apartment for the purpose of his own living.
In objective terms, the apartment must be available to the taxpayer as a place to stay at all times (whenever he wishes) and must also be intended by him in subjective terms for appropriate use, i.e. for a period of residence at all times. If you do not want to be subject to unlimited taxation, you should do the opposite of the latter.
Source from the Federal Ministry

Federal Fiscal Court (BFH),  judgment of 23.10.2018 - I R 74/16
Lower court: FG Baden-Wuerttemberg, judgment of  7.10.2015 - 1 K 2833/12



The Federal Ministry (BMF) has clarified that fees received by foreign platform operators and Internet service providers for the placement or placement of electronic advertising on Internet pages are not subject to German tax deduction pursuant to § 50a EStG. Therefore, online advertising expenses are not subject to withholding tax (BMF v. 3.4.2019 - IV C 5 - S 2411/11/10002).




Local tax offices, for example in Bavaria, North Rhine-Westphalia and Rhineland-Palatinate, have recently started to declare online marketing no longer as a service, but as "transfer of use of rights and similar experiences" in the sense of § 49 passage 1 no. 9 EStG, involving foreign companies.

The consequence: Income from this would then be subject to withholding tax at a tax rate of around 15 percent within the meaning of § 50a EStG.


This would have severely restricted the competitiveness of German companies. At the beginning of March 2019, the central business associations had already informed the Federal Ministry of Finance that such withholding tax retention is not according to the law and urged a nationwide clarification. At a joint meeting in mid-March 2019, the Federal Government and the states agreed that withholding tax would not be covered by the legal situation. So the Bavarian Ministry of Finance had announced this opinion in a press release on March, 14 th 2019.


In a letter dated April, 3 rd 2019, the Federal Ministry of Finance has now clarified that, contrary to the practice of tax offices before, online advertising measures on foreign Internet platforms are not subject to withholding tax deduction:


Remuneration received by foreign platform operators and Internet service providers for the placement or brokerage of electronic advertising on Internet pages is not subject to withholding tax pursuant to § 50a passage 1 no. 3 EStG. They are not paid for a temporary transfer of rights pursuant to § 49 passage  1 no. 2 letter f EStG or for the use of commercial, technical, scientific or similar experience, knowledge and skills pursuant to § 49 passage  1 no. 9 EStG.


Therefore, the debtor of such remuneration is not obliged to withhold, pay and declare the withholding tax pursuant to § 50a passage 5 EStG in conjunction with § 73e EStDV.


This applies to fees for advertising for inquiries in online search engines, via brokerage platforms, for social media advertising, banner advertising and comparable other online advertising and regardless of the conditions under which the remuneration is due on the basis of the specific contractual relationship (e.g. cost per click, cost per order or cost per mille, revenue share).


Is the digital tax off the table now, too?

The question is whether the digital tax on online advertising measures has now been settled. It is well known that at EU level it has not yet been possible to agree on a common approach. The plan to introduce an EU-wide sales tax on digital advertising revenues of three percent from 2021 did fail in March 2019 due to the necessary unanimity (Art. 110 et seqq. AEUV).

However, Austria now wants to "take the lead":


An obligation for digital merchant platforms will be introduced there. Internet companies with a worldwide turnover of more than 750 million euro are to pay five percent tax on the advertising profit generated online in Austria in future. It seems to be only a matter of time before other EU states follow this example.

Since the Internet does not stop on borders, only a mulitlateral EU digital tax makes sense.


Source: German Federal Ministry

Press realease 03.04.2019 – IV C 5 – S 2411/11/10002

In many German cities, living space is prohibited from being used for purposes other than those for which it was intended. According to this prohibition, private apartments may not or only to a limited extent be rented out as holiday apartments.
In Munich, a lease of private dwellings for more than eight weeks in a calendar year for the purpose of third-party accommodation is subject to approval. The City of Munich has therefore requested information from Airbnb, the Irish-based rental platform, as to which landlords in the city of Munich have rented apartments through the platform in the period from January 2017 to July 2018 and have exceeded the maximum period of eight weeks.
And rightly so, as the Munich financial lower court confirmed. Airbnb's operating company must comply with national regulations because it operates in Germany. The Irish head office does not change this either. Since the City of Munich was responsible for the subject matter and location and there was no violation of EU law or data protection regulations, not only the request for information, but also the additional penalty payment of  300,000  threatened in the event of an infringement was legal.
Administrative Court Munich, Judgment of 12.Dezember 2018 – M 9 K 18.4553

A retailer hired his wife as an office and courier worker for 400 € per month as part of a mini job. Of the total of nine hours of work, three were assigned to the office worker and six to the courier worker. An essential part of the wage was the possibility to drive the car used for the courier services privately.


The retailer determined the possibility of private use on the basis of the 1% regulation and paid out the difference to the total remuneration entitlement of 15 € per month. He deducted the costs of the mini job from the profit as an operating expense. However, the tax office did not accept the employment relationship.

In the first instance the tax office lost to the fiscal lower court Cologne (fiscal court Cologne, judgement of 27 September 2017 - 3 K 2547/16). In the second instance (appeal instance), the tax office won to the Federal Fiscal Court (Federal Fiscal Court, judgment of 10 October 2018 - X R 44-45/17).

The brief justification for this is as follows: Typically, an employer will only hand over a company car to an employee for unrestricted private use if, according to a rough calculation, the employee's expenditure plus the cash wage represents an appropriate consideration for the employee. If the salary is high, the private use of the vehicle has only a relatively minor effect. In the case of a minijob, however, the remuneration is essentially determined by the private use and not by the use of the work.
Fiscal court Cologne, judgment of 27 September 2017- 3 K 2547/16
Federal Fiscal Court, judgment of 10 October 2018 - X R 44-45/17



On 22 June 2016, the the EU Court of Justice (CJEU) ruled in the Dutch preliminary ruling case Gemeente Woerden (C-267/15) that where a taxable person has had a building constructed and has sold that building at a loss, this person may deduct all of the VAT paid in respect of the construction of that building, and not only a part of that tax in proportion to the parts of the building which its purchaser uses for economic activities. The fact that that purchaser allows the building at issue to be used without charge is of no importance in that regard.




On 31 May 2016, the OECD opened a public consultation (until 30 June) on creating a multilateral instrument to implement the tax treaty-related BEPS measures by modifying bilateral tax treaties (Action 15 of the BEPS Action Plan). An Ad Hoc Group of now 96 countries charged with developing such legal instrument was set up in May 2015. The Group aims to conclude its work and open the multilateral instrument for signature by the end of this year.


The OECD invites comments specifically on the implementation of the multilateral agreement and on the matters it will deal with, namely a mutual agreement procedure including an optional provision for binding arbitration and provisions on hybrid mismatch arrangements, tax treaty benefits in inappropriate circumstances, and the artificial avoidance of "permanent establishment" status.


The OECD also updated its BEPS timetable: The next consultation papers the OECD is planning to issue are:


-       Design and operation of the group ratio rule for interest deductions: 6 July 2016

                 (deadline: 3 August 2016).

-    Hybrid mismatches and branches: 15 July 2016 (deadline: 28 July 2016).

-    Interest limitation in the banking and insurance sectors: 18 July 2016

                 (deadline: 29 August).  



Germany is going to change its tax law to allow donations to foreign charities the same inheritance tax treatment as donations to German charities. This commitment has led to the closing of an infringement proceeding against the country on 25 February 2016, as the Commission announced on 31 March.


Previously, domestic charities had been granted an exemption from German inheritance tax, whereas similar charities established in other EU/EEA States only enjoyed this exemption if their state of residence granted an equivalent or reciprocal exemption to comparable German charities.




On 22 March 2016, the OECD released a standardised electronic format for the exchange of country-by-country (CbC) reports between jurisdictions as well as a user guide. This CbC XML scheme is part of the OECD’s work to ensure the swift and efficient implementation of the BEPS measures. CbC reports should be electronically transmitted between the competent authorities.


The move is expected to help tax administrations obtain a complete understanding of the way in which multinational enterprises (MNEs) structure their operations.


Exchanges of CbC reports will start in 2018 containing information on the year 2016.


The country-by-country reporting template applies to groups with an annual consolidated revenue in the immediately preceding fiscal year of at least EUR 750 million.




Since 23 March 2016, the European Commission consults on the establishment of an EU-wide insolvency framework, following the publication of an initial inquiry into insolvency law harmonisation earlier this month. The European Commission aims to support businesses in financial difficulties while at the same time maximising the value received by creditors, shareholders, employees, investors, tax authorities, and other parties concerned. The Commission intends to present a legislative proposal on insolvency by the end of 2016. Overall efficiency and effectiveness of insolvency frameworks should be increased while also building on national regimes.


Closing date is 14 June 2016.





On 22 October 2015, the CJEU rendered its judgment in case C-277/14 (PPUH Stehcemp) referred to it by the Polish Supreme Administrative Court. The EU Court holds that national law may not refuse the deduction of the VAT due or paid in respect of goods delivered, on the grounds that the invoice was issued by a trader which is to be regarded as non-existent, and that it is impossible to determine the identity of the actual supplier of the goods. This does not apply where it is established on the basis of objective factors that that taxable person knew, or should have known, that the transaction was connected with VAT fraud. When establishing this, the taxable person cannot be required to carry out checks which are not his responsibility.



On 22 October 2015, the EU Court of Justice (CJEU) decided in the Swedish preliminary ruling case C-264/14, Hedqvist, that no VAT is due on the exchange of a "traditional" currency into the digital currency (and vice versa). This means that Bitcoins get the same VAT treatment as traditional currencies.


Source: CFE



On 7 August 2015, the OECD published practical guidance to assist government officials and financial institutions in the implementation of the OECD/G20 "global" Common Reporting Standard (CRS) on Automatic Exchange of Financial Account Information which the OECD had presented in February 2014 (full version in July 2014) and which has been included EU law in January 2015. The Implementation Handbook specifies which of the CRS´s options are granted under the EU Directive and identifies areas for alignment with FATCA. The OECD guidance is not legally binding but could contribute to a more uniform application of the CRS if implemented consistently. It addresses the operational and transitional challenges resulting from the staggered implementation of the Standard. It also contains answers to frequently asked questions from business and governments. As the OECD points out, the Handbook is intended to be a "living" document and will be updated on a regular basis.


Source: CFE



On 25 July 2015, the German weekly magazine Der Spiegel reported that German Finance Minister Wolfgang Schäuble is open towards the idea of a Eurozone budget which could be funded by VAT revenues or by a surcharge on other taxes, raised by a Euro Finance Minister. These considerations are based on the "Five Presidents´ Reports" by European Commission President Jean-Claude Juncker, Euro Summit President Donald Tusk, Eurogroup President Jeroen Dijsselbloem, the European Central Bank President Mario Draghi and European Parliament President Martin Schulz, presented on 22 June 2015. The paper foresees the introduction of a Eurozone treasury. The Eurozone reforms should be completed by 2025.


Source: CFE



On 28 November 2014, the finance ministers of France, Germany and Italy sent a joint letter to EU tax Commissioner Pierre Moscovici, asking the Commission to propose a comprehensive EU Directive to counter BEPS (base erosion and profit shifting by multinational enterprises). The Directive should contain a “general principle of effective taxation”, according to which the benefits of the Parent-Subsidiary and the Interest & Royalties Directive should be denied if they do not lead to effective taxation. Member states should adopt this Directive by the end of 2015. The ministers express their support for the European Commission´s recent initiative to oblige member states to automatically exchange among each other nformation on international tax rulings, including transfer pricing matters. They also require registers of beneficial owners of companies, to be   available to tax administrations.


Other issues touched upon are patent box regimes, agreed counter-measures against tax havens and a common GAAR (general anti abuse rules).



On 5 December 2014, the European Commission has published a list of national contact points
for any questions of operators regarding the 2015 changes to VAT on electronic,
telecommunication and broadcasting services.




On 20 November 2014, the European Commission published a comprehensive cross-country study on taxes on wealth and transfer of wealth in the EU member states, including inheritance and gift taxes, real estate and land taxes and net-wealth taxes. While inheritances are taxed in 20 member states, gifts in 21 and real estate in every member state, taxes on net-wealth are rare. Though several countries have “environmental” taxes on the possession of certain assets, only three member states use net-wealth as a tax base.

The Commission also made available the presentations given at the ECFIN workshop of 17 November 2014 in Brussels.


Source: CFE



On 19 November 2014, Switzerland has signed, as the 52nd country, the “multilateral competent authority agreement”, dealing with the practical implementation of the OECD global standard on automatic exchange of financial information in tax matters. The decision is still subject to parliamentary approval and possibly a plebiscite.


Source: CFE




On 30 October 2014, the European Commission issued a staff working document setting out five options for redesigning from scratch a destination-based EU VAT system. The paper is a deliverable announced in the Commission´s 2011 Communication on the future of VAT and will be followed up by a final report on the quantitative effects of each of the five options in spring 2015.


Source: CFE



On 29 October 2014, 51 countries signed a multilateral declaration on their implementation of the new G20/OECD global standard on annual automatic exchange of tax information endorsed by the G20 finance ministers in September 2014. Most jurisdictions have committed to implementing this standard on a reciprocal basis with all interested jurisdictions. Governments also agreed to require that beneficial ownership of all legal entities be available to tax authorities and exchanged with treaty partners.





The OECD Council approved yesterday the contents of the 2014 Update to the OECD Model Tax Convention. The Update, which was previously approved by the Committee on Fiscal Affairs on 26 June, will be incorporated in a revised version of the Model Tax Convention that will be published in the next few months.


The 2014 Update reflects work on the Model Tax Convention that was carried out between 2010 and the end of 2013; it does not, therefore, include any results from the ongoing work on the BEPS Action Plan.


The 2014 Update includes the changes to Article 26 and its Commentary that were approved by the OECD Council on 17 July 2012.  It also includes the final version of a number of changes that were previously released for comments.


The introduction to the contents of the 2014 Update provides information on how comments received on some of the discussion drafts listed above were dealt with. In addition, the reports on “Tax treaty issues related to emissions permits/credits” and “Issues related to Article 17 of the OECD Model Tax Convention” provide additional background for some of the changes included in the Update (these reports will be added to the section of the full version of the Model Tax Convention that includes previous reports on the Model Tax Convention). 


(release by CFE)


The European Commission brought a series of infringement proceedings against eight Member
States for failure to comply with their Obligations under the directive on the common system of
value added tax.
The actions relate to the special scheme for travel agents Czech Republic,
Finland, France, Greece, Italy, Poland and Portugal.
The Commission considers that the special scheme for travel agents is applicable only to sales of
travel services to travellers. It complains that the Member States concerned authorised the
application of that scheme to sales of travel services to any type of customer. In its judgments
of today, the Court acknowledges that there are particularly significant differences
between the language versions of the directive, some using the term ‘traveller’ and/or the
term ‘customer’, at times varying the use of those terms from one provision to another.
The Court points out that where there are discrepancies between the various languag
e versions of an EU Instrument, the provision at issue must be interpreted by reference to the general scheme
and purpose of the rules of which it forms part. In that regard, the Court considers that an approach
consisting in applying the special scheme to any type of customer is the best way of achieving the
aims of the scheme. It enables travel agents to benefit from simplified rules regardless of the type
of customer to whom they provide their services, while encouraging a fair distribution of receipts
between the Member States. Furthermore, the Court has already interpreted the word ‘traveller’ by
giving it a meaning wider than that of final consumer
Therefore, since it considers that the provisions of the special scheme are not
Limited to sales of travel services to travellers, the Court dismisses in their entirety the
Commission’s Actions against Poland, Italy, the Czech Republic, Greece, France, Finland and Portugal.
(Court of Justice of the European Union; Press Release no. 120/13)


Contributions due for benefits cannot be assessed within an indefinite
period of time after the benefit has been received. Instead, the
legislature must achieve a balance between the public interest in the
levying of the contribution and the interest of the person liable to pay
the contribution in obtaining clarity about the extent of the payment.
This is what the First Senate of the Federal Constitutional Court
decided in an order that was published today. At the same time, the
Senate declared a provision of the Bavarian Municipal Charges Act
(Bayerisches Kommunalabgabengesetz) incompatible with the constitutional
principle of legal certainty because the provision does not consider at
all that the person liable to pay the contribution has an interest in a
time limit for the levying of charges. The Land legislature was
requested to enact a constitutional provision by 1 April 2014.

Essentially, the decision is based on the following considerations:

1. According to Bavarian law, the time-limit for the assessment of
municipal contributions is four years. As a general rule, the time-limit
starts to run at the end of the year in which the duty to pay the
contribution has arisen. In this regard, the Bavarian Municipal Charges
Act makes reference to the Federal Fiscal Code. Article 13 sec. 1 no. 4
letter b double letter cc indent 2 of the Bavarian Municipal Charges
Act, however, makes special provision for the case of invalidity of the
rules on contribution: in this case, the time-limit starts to run only
at the end of the calendar year in which valid rules have been

2. From 1992 to 1996, the complainant was the owner of built-up property
which was connected to the local drainage system. During an inspection
of the property in 1992, the local authorities found out that the top
floor of the building had been converted. However, they levied a
drainage construction contribution for the converted surface of the top
floor from the complainant only in a subsequent assessment order of 5
April 2004. The order was based on Rules Governing Contributions and
Fees which supplemented the Drainage Rules of 5 May 2000. To remedy the
voidness of the previous Rules, the local authorities had enacted the
Rules with retroactive effect as from 1 April 1995. During the
complainant’s objection proceedings, these Rules proved void as well.
The local authorities thereupon adopted new Rules and put them into
force retroactively as from 1 April 1995. The new Rules were published
in the Municipal Gazette on 26 April 2005.

3. The action brought by the complainant against the assessment order
and against the ruling by the local authorities on the complainant’s
objection was unsuccessful before the Administrative Court and the
Higher Administrative Court.

4. The constitutional complaint lodged against these decisions is
admissible and well-founded to the extent that it challenges a violation
of the constitutional principle of legal certainty.

a) If no independent new violation of the right to a hearing in court
committed by the court of appeals is alleged, a complaint that alleges a
violation of this right does not need to challenge also the ruling of
the court of appeals to satisfy the requirement that all legal remedies
must have been exhausted before a constitutional complaint is lodged.

b) In the case at hand, the constitutional standards for the
permissibility of retroactive laws are not violated. As far as the
complainant is concerned, Art. 13 sec. 1 no. 4 letter b double letter cc
indent 2 of the Bavarian Municipal Charges Act does not have retroactive
effect. The Act entered into force on 1 January 1993. At that time, no
Rules existed that effectively remedied the voidness of the existing
Rules within the meaning of the provision. Such Rules with effect as
from, or before, 1 January 1993 did not enter into force at a later date
either. Irrespective of the new legislation, the period of limitation
had therefore not begun to run.

c) However, the provision in question violates Art. 2 sec. 1 of the
Basic Law (Grundgesetz – GG) in conjunction with the principle of legal
certainty, which is an essential component of the principle of the rule
of law entrenched in Art. 20 sec. 3 GG, in its manifestation as
principle of clarity and predictability of burdens.

aa) In their interaction with the fundamental rights, legal certainty
and the protection of confidence guarantee the reliability of the legal
order, which is an essential prerequisite for self-determination over
one’s own life choices and their implementation. The principle of the
protection of confidence means that the citizens must be able to rely to
a certain extent on the continuance of certain statutes. Furthermore,
under specific circumstances, the principle of the rule of law
guarantees legal certainty even if no statutes exist that give rise to
specific confidence, or if circumstances exist that are even contrary to
such confidence. In its manifestation as principle of the clarity and
predictability of burdens, the principle of the rule of law protects
against using events that occurred a long time ago and are de facto
completed as a link for imposing new burdens.

bb) If obligations to pay contributions in return for benefits link to
facts in the past, it is required under constitutional law to establish
a time-limit for the obligation to pay.

The aim of limiting payment claims of state authorities is to achieve a
fair balance between the justified interest of the public in the
comprehensive and complete realisation of these claims on the one hand,
and the citizens’ interest, which is worthy of protection, on the other
hand, in no longer having to expect at some point in time to be liable
to make a contribution, and in being able to plan accordingly. It is a
characteristic of statutes of limitation that they apply without
evidence that confidence existed in an individual case, without
confidence that is typically assumed, and in particular without
confidence being actively exercised. Instead, they derive their
justification and their necessity from the principle of legal certainty.

When levying contributions in return for benefits, the legislature is
obliged to enact statutes of limitation, or at least to ultimately
ensure that such contributions cannot be assessed for an unlimited time
after the benefit has been received. Contributions derive their
legitimation from compensating a benefit that the persons concerned
received at a certain point in time. The longer ago this point in time
was at the time when the contributions are assessed, the more does the
legitimation to assess such contributions decrease. The principle of
legal certainty demands that the recipient of a benefit obtains clarity
in reasonable time about whether, and if so, to what extent,
contributions must be paid in return for the benefits received.

cc) In Art. 13 sec. 1 no. 4 letter b double letter cc indent 2 of the
Bavarian Municipal Charges Act, the legislature failed to achieve the
necessary balance between legal certainty on the one hand and the
validity of the law and the fiscal interest, on the other hand. By
postponing the beginning of the period of limitation without setting any
time limit, the legislature does not at all take into account the
citizen’s justified interest in not having to expect the assessment of
the contribution if a certain time has passed after the benefit arose.

5. As the legislature has several possibilities of remedying the
unconstitutional situation at its disposal, in the case at hand it is
only possible to declare the provision in question incompatible with the
Constitution. This has the consequence that the unconstitutional
provision may no longer be applied by courts and administrative
authorities. Pending court and administrative proceedings in which the
decision depends on this provision remain suspended or are to be
suspended until a new legislation is enacted, at the latest, however,
until 1 April 2014. If the legislature has not enacted a new legislation
until 1 April 2014, the unconstitutional provision will be void.

(Press release of the Federal Constitutional Court no. 19/2013 of April, 3rd 2013)


Despite a serious implementation deficit, the legal provisions on plea
bargaining in criminal trials are currently not yet unconstitutional.
However, the legislature has to continually assess the effectiveness of
the safeguard mechanisms that ensure compliance with the constitutional
requirements and, if necessary, improve them. So-called informal
agreements, which take place outside of the legal framework, are not
permissible. This is what the Second Senate of the Federal
Constitutional Court decided in a judgment that was delivered today. At
the same time, the Federal Constitutional Court reversed the ordinary
courts’ decisions which had been challenged by the complainants because
it found violations of the Constitution in the respective proceedings
and remitted the cases for a new decision.

The Decision is Essentially Based on the Following Considerations:

1. The complainants challenge their convictions for criminal offences
following plea bargains between the court and the parties to the case.
In the proceedings 2 BvR 2628/10 and 2 BvR 2883/10, the constitutional
complaints are also directed against § 257c of the Code of Criminal
Procedure (Strafprozessordnung – StPO), which was added by the Act on
the Regulation of Plea Bargaining in Criminal Proceedings of 29 July
2009 (Gesetz zur Regelung der Verständigung im Strafverfahren, in the
following: Verständigungsgesetz
– Plea Bargaining Act).

2. The constitutional complaints are well-founded insofar as they are
directed against the challenged decisions; with regard to the remaining
part, they are unsuccessful.

a) Criminal law is based on the principle of individual guilt, which has
constitutional status. This principle is anchored in the guarantee of
human dignity and personal responsibility (Art. 1 sec. 1 and Art. 2 sec.
1 of the Basic Law (Grundgesetz – GG), as well as in the principle of
the rule of law (Art. 20 sec. 3 GG). The government is obliged under the
Constitution to ensure the functioning of the criminal justice system.
It is the central concern of criminal proceedings to establish the real
facts of a case, without which it is impossible to implement the
substantive principle of individual guilt.

The right to a fair trial guarantees defendants to exercise their
procedural rights and to adequately ward off infringements – especially
those from governmental entities. It is primarily the task of the
legislature to design these procedural rights. A violation of the right
to a fair trial only exists if an overall assessment of the law of
procedure shows that conclusions which are compulsory under the rule of
law have not been drawn, or that rights which are indispensable under
the rule of law have been waived. In the context of this overall
assessment the requirements for a functioning criminal justice system,
including the obligation to ensure the speedy conduct of proceedings,
have to be kept in mind as well.

The right against self-incrimination and the presumption of innocence
are anchored in the rule of law and have constitutional status. In
particular, the defendant has to be in a position to decide under no
constraints and independently whether and if so, to which degree he or
she participates in the criminal trial.

b) Against this backdrop, it is true that plea bargains bear the risk
that the constitutional requirements are not fully adhered to. However,
under the Constitution the legislature is not a priori precluded from
permitting plea bargains in order to simplify proceedings. In order to
meet the constitutional demands, the legislature deemed it necessary to
establish explicit legal requirements for plea bargains, which, while
significant in practice, have always remained controversial. With the
Plea Bargaining Act, the legislature did not introduce a new
“consensual” class of proceedings, but integrated plea bargains into the
existing system of criminal procedure.

aa) The Plea Bargaining Act points out explicitly that the court’s
obligation to investigate the facts ex officio remains untouched. The
legislature thus clarified that a plea bargain as such can never
constitute the sole basis for a judgment, but that what is necessary is
still exclusively the court’s own conviction. Furthermore, it is
imperative that the plea bargain-based confession be verified. Insofar
as this limits the practical scope of plea bargains, it is the
inevitable consequence of introducing them into the current system of
criminal procedure. Moreover, the legal analysis can also not be
modified in the context of a plea bargain; this includes the adjustment
of penalty ranges for particularly serious or minor cases.

bb) The Plea Bargaining Act comprehensively governs the permissibility
of plea bargains in criminal proceedings. It thus prohibits what are
euphemistically called “informal” approaches during plea bargaining.
Furthermore, it limits the plea bargain to the subject-matter of the
trial. So-called “package solutions”, in which the prosecution promises
to close other investigations, are thus not permissible.

cc) Transparency and documentation of plea bargains are key aspects of
the regulatory approach. This is meant to ensure an effective control by
the public, the prosecution, and the court of appeals. Notably, the
actions in connection with the plea bargain have to be comprehensively
incorporated into the – usually public – trial. This fact also confirms
that even after a plea bargain, the judges’ conviction has to derive
from the hearing as a whole.

A violation of the duty to provide transparency and documentation will
generally render a plea bargain that has nonetheless been concluded
illegal. If a court adheres to such an illegal agreement, it will
frequently not be possible to exclude the possibility that the judgment
was based on this violation of the law.

Of particular importance is the monitoring by the prosecution. The
prosecution is not only obliged to refuse to agree to an illegal plea
bargain, but also has to lodge appeals against judgments that are based
on such an agreement. The fact that the prosecution is a hierarchical
system and has reporting obligations makes it possible that this
monitoring capacity can be exercised according to consistent standards.

dd) Finally, the Plea Bargaining Act stipulates that the defendant be
instructed under what circumstances and with which consequences the
court can deviate from the result which it had offered as a prospect.
This instruction is meant to put the defendant in a position to decide
independently about his or her cooperation in the plea bargain. If the
duty to instruct has been violated, on appeal it will regularly have to
be assumed that the confession and thus the judgment were based on this

c) The Plea Bargaining Act sufficiently ensures the compliance with the
constitutional requirements. The fact that the implementation of the
Plea Bargaining Act falls considerably short of these requirements does
not, at present, render the legal provisions unconstitutional.

aa) The legal regulatory concept would only be unconstitutional if the
envisaged protection mechanisms were so fragmentary or otherwise
insufficient that they would promote the illegal practice of “informal”
plea bargains, i.e. that the deficit in implementation would be
determined by the norm’s structure.

bb) Neither the result of the empirical study nor the statements given
in the course of the constitutional complaint proceedings make a
compelling case for the assumption that structural flaws of the
regulatory concept have led to the present implementation deficit. There
are various reasons for this. The empirical study names as the main
reason the provisions’ “lack of practicality”. This suggests a hitherto
insufficiently developed awareness that there must be no plea bargains
without compliance with the requirements of the Plea Bargaining Act.

d) The legislature has to keep a close eye on the future developments.
If the legal practice continues to deviate to a large extent from the
legal stipulations, and if the Plea Bargaining Act proves to be
insufficient to overcome the implementation deficit, the legislature
will have to counteract the misguided development with adequate
measures. If this remained undone, it would lead to a situation that is

3. The decisions by the ordinary courts that were challenged with the
constitutional complaints are incompatible with the Basic Law’s
requirements for plea bargaining in criminal proceedings.

a) The decisions that were challenged by the complainants in the
proceedings 2 BvR 2628/10 and 2 BvR 2883/10 violate their right to a
fair trial in according with the rule of law and infringe their right
against self-incrimination. In general, a plea bargain can only be
reconciled with the principle of a fair trial if, before its conclusion,
the defendant has been instructed about its limited binding effect on
the court. If a confession that was made pursuant to a violation of this
duty to instruct is incorporated into the judgment, the judgment is
based on the violation of a fundamental right, except if it can be
excluded that the inaccurate instruction was the reason for the
confession, because the defendant would have made the confession even if
he or she had been correctly instructed. The court of appeals needs to
make specific determinations on this.

b) The decision by the Regional Court that was challenged in the
proceedings 2 BvR 2155/11 violates the constitutional principle of
individual guilt because the Regional Court sentenced the complainant
largely on the basis of a formal confession that had not been verified.
Furthermore, the judgment was based on a plea bargain that had
determined the content of the conviction in an impermissible way. In
this case, the line to an unconstitutional infringement of the right
against self-incrimination had also clearly been crossed. The Regional
Court combined a difference between the two penalty limits in question –
a difference which in itself was already excessive – with the assurance
to suspend the sentence on probation, which was only possible because
the penalty range was changed to a minor case.


(Press release of the Federal Constitutional Court no. 17/2013 of 19th March 2013)




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