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Case:
BVerfGE 72, 200 2 BvL 2/83 "German-Swiss Double Taxation Agreement - Retroactivity of Tax Law Provisions"
Date:
14 May 1986
Judges:
Zeidler, Rinck, Steinberger, Träger, Mahrenholz, Böckenförde, Klein
Copyright:
© Nomos Verlagsgesellschaft

HEADNOTE:

On the limits of permissible retroactivity in amending provisions of income tax law.
Order of the Second Senate of 14 May 1986 - 2 BvL 2/83 --
in the proceedings to review whether
a) § 20(1)(a) of the Act on the Taxation of Foreign Transactions (External Tax Act) [Gesetz über die Besteuerung bei Auslandsbeziehungen; Außensteuergesetz] of 8 September 1972 (BGBl. I, p. 1713) is compatible with the Basic Law of the Federal Republic of Germany to the extent that it prescribes the application of § 2(1) and (5), second sentence, of the External Tax Act for the period 1 January 1972 to 22 June 1972, and
b) Art. 1, first sentence, of the Act of 5 September 1972 on the Agreement between the Federal Republic of Germany and the Swiss Confederation for the Avoidance of Double Taxation in the Area of Tax on Income and Property of 11 August 1971 (BGBl. 1972 II, p. 1021) is compatible with the Basic Law for the Federal Republic of Germany to the extent that it refers to Arts. 30(1) and 32(2) of the Agreement and thereby deprives, for the period 1 January 1972 to 14 June 1972, those persons covered by Art. 4(6)(a) of the Agreement of the protection of the Agreement between the German Reich and the Swiss Confederation for the Avoidance of Double Taxation in the Area of Direct Tax and Inheritance Tax of 15 July 1931, in the version of the Additional Protocol of 20 March 1959 (RGBl. 1934 II, p. 38; BGBl. 1959 II, p. 1253)
-- Order of the Federal Fiscal Court of 3 November 1982 to stay the proceedings and submit the matter to the Federal Constitutional Court (I R 3/79) --

DECISION:

1. a) § 20(1)(a) of the Act on the Taxation of Foreign Transactions (External Tax Act) of 8 September 1972 (BGBl. I, p. 1713) is incompatible with the principle of rule of law (article 20(3) of the Basic Law) and therefore null and void to the extent that the provision prescribes the application of § 2(1) and (5), second sentence, of the External Tax Act to income accruing between 1 January 1972 and 21 June 1972 of such persons who, under the state of the law originally in force, either were only subject during this period to the restricted income tax liability of § 1(2) of the Income Tax Act of 1971, with this liability having come to an end without replacement at least for the calendar year 1972 prior to 22 June 1972, or who were not subject to any income tax liability whatsoever during this period and for whom such liability also would not have arisen for the remainder of the calendar year 1972.

b) In addition, the directive prescribed by § 20(1)(a) of the External Tax Act as based on § 2(1) and (5), second sentence, of the External Trade Act is incompatible with the principle of rule of law (article 20(3) of the Basic Law) and therefore null and void to the extent that this directive extends to such income accruing to the taxpayer between 1 January 1972 and 21 June 1972 and, under the state of the law originally in force, subject to withholding tax with discharge effect.

c) In all other respects, § 2(1) and (5), second sentence, of the External Trade Act, as well as the directive of § 20(1)(a) of the External Trade Act based on this provision, are compatible with the Basic law.

2. a) Article 1, first sentence, of the Act of 5 September 1972 on the Agreement between the Federal Republic of Germany and the Swiss Confederation for the Avoidance of Double Taxation in the Area of Tax on Income and Property of 11 August 1971 (BGBl. 1972 II, p. 1021) violates the principle of rule of law (article 20(3) of the Basic Law) to the extent that it, by way of the approval set forth in Articles 30(1) and 32(2) of the Agreement, prescribes the domestic application of Article 4(6)(a) of the Agreement by the Federal Republic of Germany for the German taxation of income accruing between 1 January 1972 and 13 June 1972 of such persons who, under the state of the law originally in force (assuming that the German taxation of income was permissible), either were only subject during this period to the restricted income tax liability of § 1(2) of the Income Tax Act of 1971, with this liability having come to an end without replacement at least for the calendar year 1972 prior to 14 June 1972, or who were not subject to German income tax liability during this period and for whom such liability also would not have arisen for the remainder of the calendar year 1972.

b) Furthermore, Article 1, first sentence, of the Act of 5 September 1972 violates the principle of rule of law (article 20(3) of the Basic Law) to the extent that it, by way of the approval set forth in Articles 30(1) and 32(2) of the Agreement, prescribes the domestic application of Article 4(6)(a) of the Agreement by the Federal Republic of Germany for the German taxation of such income accruing to the taxpayer between 1 January 1972 and 13 June 1972 and, under the state of the law originally in force (assuming that the German taxation of income was permissible), subject to withholding tax with discharge effect.

c) To the extent described in a) and b), Article 1, first sentence, of the Act of 5 September 1972 is null and void; the domestic application of Articles 30(1) and 32(2) in conjunction with Article 4(6)(a) of the Agreement of 11 August 1971 by the Federal Republic of Germany is prevented by virtue of the Constitution.

d) In all other respects, Article 1, first sentence, of the Act of 5 September 1972 is compatible with the Basic Law to the extent that it prescribes for the German taxation of income the domestic application of Article 4(6)(a), and of Articles 30(1) and 32(2) based on it, of the Agreement of 11 August 1971.

EXTRACT FROM GROUNDS:

A.

The submission by the Federal Fiscal Court relates to the amendment of income tax provisions with effect for a running tax period (here: calendar year 1972).

I.

1. Very soon after the Basic Law entered into force, a growing number of domestic taxpayers began to exploit the international tax differential to reduce their tax burdens. This was accomplished, inter alia, in that taxable Germans within the meaning of art. 116 Basic Law shifted their domicile to areas with lower taxes, in particular, Switzerland, although they nevertheless basically continued to exercise their commercial activities in the Federal territory to no lesser extent.

a) With respect to the income tax liability, which forms the subject of the proceedings below, this circle of persons benefitted from the circumstance that under § 1(1) of the Income Tax Act (Einkommensteuergesetz; EStG 1971) in the revised version, controlling here, of 1 December 1971 (BGBl. I, p. 1881), unrestricted income tax liability, which covers all domestic and foreign income (so-called worldwide income) (§ 1(1), second sentence, EStG 1971), only applies to those natural persons who have their domicile, or customary place of residence, in the Federal Republic of Germany. Natural persons who have neither their domicile nor their customary place of residence in the country are only subject to restricted income tax liability (§ 1(2) EStG 1971); this income tax liability only covers certain domestic income described in detail in § 49 EStG 1971. Moreover, the tax rate for persons subject to restricted income tax liability is determined only with regard to the income falling under the restricted tax liability, i.e. -- in contrast to persons subject to unrestricted income tax liability -- without regard for other domestic or foreign income of the taxpayer. In light of graduated income tax, this can lead to much more favourable tax rates than with the inclusion of «worldwide income» (cf. § 50(3) in conjunction with § 32a(1) EStG 1971).

In this regard, however, § 50(2) EStG 1971 states that for persons subject to restricted income tax liability -- in contrast to those with unrestricted income tax liability (cf. § 2(2) EStG 1971) -- «with respect to income subject to withholding tax and with respect to income within the meaning of § 20(1), Nos. 3 and 4 ... an off-setting (§ 2(2)) with losses from other types of income is not permissible». This exclusion of an off-setting of losses among various types of incomes is basically disadvantageous for the relevant taxpayers; furthermore, personal circumstances are only taken into account to a limited extent (§ 50(1), fifth sentence, EStG 1971).

On the other hand, under § 50(4), first sentence, EStG 1971, «the income tax for income subject to withholding tax for wages or capital earnings or to withholding tax on the basis of § 50 a is considered discharged for persons with restricted tax liability by way of the withholding tax as long as such income is not operating revenues of a domestic undertaking». This rule on the so-called discharge effect (Abgeltungswirkung), which only applies to persons with restricted tax liability, affords increasing advantages the higher the tax rate -- determined by taking into account all income subject to restricted tax liability -- is than that prior to the deduction of income falling under § 50(4), first sentence, EStG 1971: The remaining tax, resulting from this mathematical difference, from income subject to withholding tax does not have to be paid by the taxpayer due to the discharge effect.

b) Once the Germans who had formerly resided in the country had shifted their residence to Switzerland, they also benefitted from the Agreement between the German Reich and the Swiss Confederation for the Avoidance of Double Taxation in the Area of Direct Tax and Inheritance Tax of 15 July 1931 (RGBl. 1934 II, p. 38), in the version of the Additional Protocol of 20 March 1959 (BGBl. II, p. 1253) -- hereinafter, DBA 1931/59. Under Art. 6(1) of this Agreement, income from moveable capital assets (securities, loans, etc.) were only taxed in the State in which the creditor had his place of residence, regardless of whether the earnings were received from the other party to the Agreement. As a result, the interest, dividends, etc. from Germany for a German resident in Switzerland were not subject to German but to Swiss income tax. For the relevant circle of persons, this led to an even greater reduction of taxable income in the amount of the income from capital assets designated in § 49(1), No. 5, EStG 1971, even though this income was generated in Germany.

2. The problematic of «tax flight» abroad in general, and that with respect to Switzerland in particular, was critically treated by the Federal Government in 1964 in its so-called «tax oasis report» (BTDrucks. IV/2412). In the following years, the Federal Republic of Germany entered into negotiations with the Swiss Confederation in order to alleviate this problematic by amending the existing Double Taxation Agreement.

In addition, the Federal Republic began in 1970 the intial work on the domestic restriction of the consequences of «tax flight», which were considered to be detrimental for tax law. In this context, it enacted on 17 December 1970 the "Guidelines for an Act to Preserve Tax Uniformity with Foreign Transactions and to Improve Tax-Related Competitiveness for Foreign Investments» (cf. the text in DB 1971, pp. 16 ff.). With respect to the reduction of the income tax burden by shifting residence abroad, the Guidelines noted:

"A natural person who as German was subject for at least five years to unrestricted tax liability and
1. is resident in a foreign territory in which his income is exempt from tax, he enjoys preferential taxation or is only subject to low taxation, and
2. has important commercial interests within the scope of validity of this Act,is subject to restricted tax liability with respect to all income that, pursuant to the limits of German law, does not represent foreign income.

Income accordingly subject to tax shall be taxed at a rate determined by all income of the taxpayer. A discharge of tax by withholding tax is precluded; the tax may not, however, be lower than the withholding tax.

If, following his departure from Germany, the taxpayer does not maintain any important commercial interests for five years, he still remains exempt from the expanded restricted tax liability even in the event of subsequent establishment of such interests.

Smaller income shall not be covered by the special rule.

The rule shall only be applied to persons who have emigrated following the commecement of the German economic recovery."

The reasoning given was:
When taxpayers shift their residence abroad, they are no longer subject to unrestricted tax liability covering their «worldwide income». They are subject to restricted tax liability. This bracket permits the exclusion of foreign income; of the income received from Germany, only certain types of income are liable to taxation (e.g., not interest on loans), whereby German tax is discharged by various types of income (e.g., dividends, licensing fees).

Perceived to be a disturbance were certain cases in which Germans who had long been resident in Germany moved to areas with more favourable tax rates. In this context, it was proposed that such persons still be made subject for a period of time to unrestricted German tax liability. This solution would entail a serious interference with the German tax system, which -- as with all European tax orders -- makes residency the decisive point. The Tax Reform Commission (No. 6 of its Report) also objected to such a solution.

The most important aspect of «tax flight» in cases of emigrants is that the emigrant retains his German commerical interests but by way of his move to an area with more favourable tax rates, receives a considerable reduction in his tax burden. The objective is therefore to establish, under the above-described conditions, a method of taxation for German income -- both with respect to the object of taxation and the amount of tax -- that leaves intact the tax burden as is carried by competing domestic undertakings and investors.

3. a) On 11 August 1971, the Federal Republic of Germany and the Swiss Confederation signed a new Agreement for the Avoidance of Double Taxation in the Area of Tax on Income and Property of 11 August 1971 (BGBl. 1972 II, p. 1021) -- hereinafter, DBA 1971 -- which was no longer limited to the area of direct tax. The Agreement accorded the circle of persons described by it in detail protection against double taxation by assigning income to the tax jurisdiction of one or the other State. Pursuant to Art. 1, the new Agreement applies «to persons resident in one or in both States Parties». Within the meaning of the Agreement, Art. 4(1) defines the term «a person resident in one State Party» as a person who, pursuant to the law in force in this State, is subject there to unrestricted tax liability. Pursuant to Art. 4(6)(a) DBA 1971, on the other hand, not considered to be «resident in one State Party» is «a natural person who in the State Party in which he, pursuant to the foregoing provisions, would be considered resident is not subject with all income from the other State Party, which is generally liable to tax under the tax law of the State of residence, to the taxes generally imposed». Such a person does not receive the protection of the DBA 1971 against double taxation, such that -- corresponding to the laws of both States Parties -- he can be made liable in both States to taxation of his income. Whether and to what extent tax liability does not apply in such a case with respect to the liability in the other State Party, or whether and to what extent the tax levied there is at least accounted for in the domestic tax, is solely determined under the laws of the State imposing the tax.

Art. 30(1) DBA 1971 states:

"With the entry into force of this Agreement, the Agreement between the German Reich and the Swiss Confederation for the Avoidance of Double Taxation in the Area of Direct Tax and Inheritance Tax of 15 July 1931, in the version of the Additional Protocol of 20 March 1959 shall become inoperative, to the extent that in Section I it relates to direct tax. Its provisions in this regard shall not longer be applicable to taxes to which this Agreement shall apply pursuant to Art. 32."

With respect to the entry into force of the Agreement pursuant to international law and with respect to its temporal scope of application, Art. 32 DBA 1971 provides the following rule:

"(1) This Agreement shall be ratified and the instruments of ratification shall be exchanged in Bern as soon as possible.
(2) This Agreement shall enter into force upon exchange of the instruments of ratification and shall be applied:
a) to withholding tax imposed on income accruing after 31 December 1971;
b) to other taxes imposed for the year 1972 and subsequent years.
(3) Each of the two States Parties shall enact the provisions necessary for implementing paragraph 2."

b) In Bundestagsdrucksache VI/3233 of 6 March 1972, the Federal Government submitted to the Bundestag the draft of a Consenting Act to the Double Taxation Agreement of 1971. In its memorandum to the Agreement, the Federal Government first pointed out that with regard to «tax flight» immigrants, Switzerland had thus far often not imposed the normal amount of Swiss tax but rather «only an unusally low lump-sum amount» (id., p. 15). The objective of the Agreement was said to be, «taking into account recent international treaty practice», to allow German taxation to be inapplicable only in such cases «in which an increase in tax differentials is not to be feared and a relief from German tax can be substantively justified» (id., p. 16). It was argued that with respect to «emigrants», this objective is served by Art. 4(6)(a) of the Agreement. When the designated circle of persons enjoys preferential taxation in Switzerland, the application of the Agreement will in the future be precluded without legal terms (id., pp. 16, 19). With regard to the new Agreement's temporal scope of application, the memorandum noted: «The Agreement is to be first applied for the year 1972. For constitutional and tax-technical reasons, Switzerland was unable to implement an earlier application» (id, p. 24).

4. Several months earlier, on 2 December 1971, the Federal Government had submitted to the Bundestag the draft of an Act to Preserve Tax Uniformity with Foreign Transactions and to Improve Tax-Related Competitiveness for Foreign Investments (BTDrucks. VI/2883). In Article 1, the draft Act contained the text of a law on the taxation of foreign transactions (External Tax Act -- Außensteuergesetz; AStG). Subject to special rules in the Double Taxation Agreement, the External Tax Act was to form the general domestic legal basis for stopping tax flight. In areas in which previous double taxation agreements prevented such a statutory regulation, they needed to be revised in the course of new negotiations.

Where of interest, Part Two of this draft Act provided for the following regulation:

Part Two
Change of Residence to Areas with Lower Taxation
§ 2
Income Tax
(1) A natural person who as German was, pursuant to § 1(1) of the Income Tax Act, subject for at least five years to unrestricted income tax liability and
1. is resident in a foreign territory in which his income is only subject to lower taxation, and
2. has important commercial interests within the scope of validity of this Act,is, until the expiry of ten years following the end of the year in which his unrestricted tax liability came to an end, subject above and beyond § 1(2) of the Income Tax Act to restricted income tax liability with respect to all income within the meaning of § 2(3) of the Income Tax Act that, with regard to unrestricted income tax liability, is not considered foreign income within the meaning of § 34c(1) of the Income Tax Act. The first sentence shall only be applicable for tax assessment periods in which all income subject here to restricted tax liability exceeds the amount of 32,000 German Marks.

(2) Lower taxation within the meaning of paragraph 1, No. 1 exists when
1. the burden resulting from the income tax levied in the foreign territory -- pursuant to the tax rate, including tax-free amounts -- for an unmarried, natural person resident in this territory who receives a taxable income of 150,000 German Marks is more than one-third less than the burden for a natural person resident within the scope of validity of this Act from the German income tax under the same conditions, unless the person can prove that the entire tax to be paid from his income amounts to at least two-thirds of the income tax that he would have had to pay in the event of unrestricted tax liability under § 1(1) of the Income Tax Act, or
2. the burden for the person from the income tax levied in the foreign territory can be substantially reduced on the basis of preferential taxation granted in comparison to the general taxation, unless the person can prove that the entire tax to be paid from his income amount to at least two-thirds of the income tax that he would have had to pay in the event of unrestricted tax liability under § 1(1) of the Income Tax Act.

(3) A person has, pursuant to paragraph 1, No. 2, an important commercial interest within the scope of validity of this Act when
1. at the beginning of the tax assessment period, he is owner or employee of an undertaking located within the scope of validity of this Act, or, when he is a limited partner, more than 25 % of the income within the meaning of § 15, No. 2 of the Income Tax Act from the company accrue to him or he possesses an essential participation within the meaning of § 17(1), third sentence, of the Income Tax Act of a domestic corporation, or
2. his income that, with regard to unrestricted income tax liability, is not foreign income within the meaning of § 34c(1) of the Income Tax Act amounts in the tax assessment period to more than 30 % of all of his income or exceeds 120,000 German Marks, or
3. his assets at the beginning of the tax assessment period, whose earnings would not, with regard to unrestricted income tax liability, be foreign income within the meaning of § 34c(1) of the Income Tax Act, amount to more than 30 % of his overall assets or exceed 300,000 German Marks.

(4) In applying paragraph 1, second sentence, and paragraph 3, consideration shall be given to undertakings, participations, income and assets of a foreign company within the meaning of § 5 in which the person participates under the conditions listed there, in accordance with the extent of participation.

(5) If paragraph 1 is applicable, the tax rate shall be applied that results for all of the person's income. For income subject to withholding tax for capital earnings or withholding tax on the basis of § 50 a of the Income Tax Act, § 50(4), first sentence, of the Income Tax Act shall not be applied. § 50(3), second sentence, applies with the stipulation that the income tax may not be less than the withholding tax amounts.

(6) If the person can prove that the tax additionally to be paid on the basis of paragraphs 1 and 5 lead as a whole to a higher domestic tax than he would have paid in the event of unrestricted tax liability and residence solely within the scope of validity of this Act, then that amount shall not be levied that exceeds the tax that would have resulted without the application of paragraphs 1 and 5.

With regard to the scope of application of the External Tax Act, the following was provided:
§ 20
Initial Application
(1) The provisions of this Act are to be applied as follows:
a) for income tax and for corporate tax, initially for the assessment period 1971,
b) for trade tax, initially for the imposition period 1971,
c) for wealth tax, initially for new or subsequent assessments regarding 1 January 1971,
d) for inheritance tax, to acquisitions for which the tax debt arose after 31 December 1971.

(2) The application of §§ 2 to 5 shall not be affected by the fact that the unrestricted tax liability of the natural person had come to an end before 1 January 1971.

As the date of entry into force of the Act, § 22 of the draft provided for the date of promulgation.

According to the reasoning accompanying the draft, the purpose of the External Tax Act was «to contribute to the realization of the state of law based on social justice in the area of taxation» (No. 14 of the Reasoning, BTDrucks. VI/2883, p. 16). It was emphasized that one of the «focal areas of the External Tax Act» (id, p. 16) was the extended taxation of domestic income following departure to a territory with lower taxation. With regard to the scope of application of the new regulation (§ 20 of the draft), the Federal Government stated:

Paragraph 1 determines that the External Tax Act is generally to be applied as of 1 January 1971, i.e., with the beginning of the year in which the entry into force of the Act is expected. The retroactivity of the statutory regulation contained herein is called for for reasons of public welfare. The constitutionally derived principles of uniformity of taxation and tax-related competitive equality require that the regulation be applied as soon as possible after enactment of the Guidelines on 17 December 1970, since otherwise the statutory regulation would be deprived of the desired financial and economic effect. Merely the provisions dealing with the tax law of inheritance are to be applied as of 1 January 1972.

Paragraph 2 makes clear that the extension of restricted tax liability pursuant to §§ 1 to 5 are to have force of law as of 1 January 1971 even for such persons who have shifted their place of residence to a territory with lower taxation prior to this date.
(Nos. 129 and 130 of the Reasoning, BTDrucks. VI/2883, p. 31)

5. a) Following brief deliberation, the Finance Committee of the Bundestag unanimously decided to recommend the adoption of the Consenting Act to the Double Taxation Agreement of 1971 (BTDrucks. VI/3503, p. 2).
b) In order to discuss the draft of the External Tax Act, the Finance Committee set up a Sub-Committee, which submitted to the Federal Ministry for the Economy and Finance several reformulation proposals from 8 June 1972. § 2(1) AStG thereby received the wording that subsequently became law (German Bundestag, 6th Electoral Period, Finance Committee -- Sub-Committee «External Tax Act», Appendix 1 to Protocol No. 1, p. 3), as did § 20(1) and (2) AStG. In justifying these amendment proposals, the representative from the Federal Ministry stated before the Sub-Committee that the first amendment meant a limitation on the extension of restricted tax liability; periods of unrestricted tax liability lying more than ten years in the past were no longer to be taken into account in order to rule out cases in which the effects of erstwhile ties to the territory of taxation no longer appear justified. The other amendment was to cover vagrant persons, including those moving from country to country and those residing on the high sees (id. at p. 6). The Sub-Committee expressed no reservations to these amendment proposals and adopted the revised version of §§ 2(1) and 20(1) and (2) of the External Tax Act (German Bundestag, 6th Electoral Period, Finance Committee -- Sub-Committee «External Tax Act», Protocol No. 2, pp. 5, 9). The Finance Committee accepted the revised version (German Bundestag, 6th Electoral Period, Finance Committee, Protocol No. 63, pp. 15, 17).

6. a) In its session of 14 June 1972, the Bundestag unanimously accepted the Consenting Act to the Double Taxation Agreement of 1971 in the second and final reading (German Bundestag, 6th Electoral Period, 191th Session, Sten.Ber., p. 11141 [11145]).

The Act to Preserve Tax Uniformity with Foreign Transactions and to Improve Tax-Related Competitiveness for Foreign Investments, and thus the External Tax Act, was unanimously adopted by the Bundestag in its session of 22 June 1972 in the second and third readings (German Bundestag, 6th Electoral Period, 195th Session, Sten.Ber., p. 11474 [11475, 11480]).

b) The Bundesrat approved both Acts on 7 July 1972 (Bundesrat, 383th Session, Plenary Protocol, pp. 617, 618, 639).

7. a) The Consenting Act to the Double Taxation Agreement with Switzerland was promulgated in the Federal Law Gazette of 9 September 1972 (BGBl. II, p. 1021). With the exchange of the instruments of ratification on 29 December 1972, the Agreement became binding under international law (cf. Art. 32(2) DBA); this was announced by the Notice of 19 January 1973 and published in the Federal Law Gazette on 9 February 1973 (BGBl. II, p. 74).

b) The Act to Preserve Tax Uniformity with Foreign Transactions and to Improve Tax-Related Competitiveness for Foreign Investments was promulagated in the Federal Law Gazette of 12 September 1972 (BGBl. I, p. 1713). The External Tax Act entered into force on the day following its promulgation (§ 22 AStG); §§ 2 and 20 read:

§ 2
Income Tax
(1) A natural person who, in the last ten years prior to the end of his unrestricted tax liability, as German was, pursuant to § 1(1) of the Income Tax Act, subject for at least five years to unrestricted income tax liability and
1. is resident in a foreign territory in which his income is only subject to lower taxation or is resident in no foreign territory, and
2. has important commercial interests within the scope of validity of this Act,is, until the expiry of ten years following the end of the year in which his unrestricted tax liability came to an end, subject above and beyond § 1(2) of the Income Tax Act to restricted income tax liability with respect to all income within the meaning of § 2(3) of the Income Tax Act that, with regard to unrestricted income tax liability, is not considered foreign income within the meaning of § 34c(1) of the Income Tax Act. The first sentence shall only be applicable for tax assessment periods in which all income subject here to restricted tax liability exceeds the amount of 32,000 German Marks.

(2) Lower taxation within the meaning of paragraph 1, No. 1 is given when
1. the burden resulting from the income tax levied in the foreign territory -- pursuant to the tax rate, including tax-free amounts -- for an unmarried, natural person resident in this territory who receives a taxable income of 150,000 German Marks is more than one-third less than the burden for a natural person resident within the scope of validity of this Act from the German income tax under the same conditions, unless the person can prove that the entire tax to be paid from his income amounts to at least two-thirds of the income tax that he would have had to pay in the event of unrestricted tax liability under § 1(1) of the Income Tax Act, or
2. the burden for the person from the income tax levied in the foreign territory can be substantially reduced on the basis of preferential taxation granted in comparison to the general taxation, unless the person can prove that the entire tax to be paid from his income amount to at least two-thirds of the income tax that he would have had to pay in the event of unrestricted tax liability under § 1(1) of the Income Tax Act.

(3) A person has, pursuant to paragraph 1, No. 2, an important commercial interest within the scope of validity of this Act when
1. at the beginning of the tax assessment period, he is owner or employee of an undertaking located within the scope of validity of this Act, or, when he is a liability partner, more than 25 % of the income within the meaning of § 15, No. 2 of the Income Tax Act from the company accrue to him or he possesses an essential participation within the meaning of § 17(1), third sentence, of the Income Tax Act of a domestic corporation, or
2. his income that, with regard to unrestricted income tax liability, is not foreign income within the meaning of § 34c(1) of the Income Tax Act amounts in the tax assessment period to more than 30 % of all of his income or exceeds 120,000 German Marks, or
3. his assets at the beginning of the tax assessment period, whose earnings would not, with regard to unrestricted income tax liability, be foreign income within the meaning of § 34c(1) of the Income Tax Act, amount to more than 30 % of his overall assets or exceed 300,000 German Marks.

(4) In applying paragraph 1, second sentence, and paragraph 3, consideration shall be given to undertakings, participations, income and assets of a foreign company within the meaning of § 5 in which the person participates under the conditions listed there, in accordance with the extent of participation.

(5) If paragraph 1 is applicable, the tax rate shall be applied that results for all of the person's income. For income subject to withholding tax for capital earnings or withholding tax on the basis of § 50 a of the Income Tax Act, § 50(4), first sentence, of the Income Tax Act shall not be applied. § 50(3), second sentence, applies with the stipulation that the income tax may not be less than the withholding tax amounts.

(6) If the person can prove that the tax additionally to be paid on the basis of paragraphs 1 and 5 lead as a whole to a higher domestic tax than he would have paid in the event of unrestricted tax liability and residence solely within the scope of validity of this Act, then that amount shall not be levied that exceeds the tax that would have resulted without the application of paragraphs 1 and 5.

With regard to the scope of application of the External Tax Act, the following was provided:
§ 20
Initial Application
(1) The provisions of this Act are to be applied as follows:
a) for income tax and for corporate tax, initially for the assessment period 1972,
b) for trade tax, initially for the imposition period 1972,
c) for wealth tax, initially for new or subsequent assessments regarding 1 January 1973,
d) for inheritance tax, to acquisitions for which the tax debt arose after the entry into force of this Act.

(2) The application of §§ 2 to 5 shall not be affected by the fact that the unrestricted tax liability of the natural person had come to an end before 1 January 1972.

(3) ...
§ 2 AStG regulates the so-called extended restricted income tax liability for natural persons who are no longer subject within the country to unrestricted tax liability but who in the last ten years prior to the end of their unrestricted tax liability were as Germans subject to unrestricted tax liability for at least five years, were resident in a foreign territory imposing only low taxation on them or were resident in no foreign territory, and who maintain important commercial interests within the territorial scope of application of the External Tax Act. This extended restricted tax liability is a form of restricted tax liability (cf. Hellwig, in Littmann/Bitz/Meincke, Das Einkommensteuerrecht, 14th ed., § 2 AStG, paras. 1 et seq., and the literature cited there above para. 1). The extended restricted tax liability basically has two effects for the circle of persons covered by it:

In the first place, it extends the bases of taxation beyond the framework established in § 49 EStG (for «normal» restricted tax liability) to further income, particularly from capital assets within the meaning of § 20(1), Nos. 3 and 4 EStG, to income within the meaning of § 22 EStG, which is not subject to tax liability under § 49(1), Nos. 7 and 8 EStG, as well as to income from recurrent earnings within the meaning of § 22, No. 1 EStG and to income from services within the meaning of § 22, No. 3 EStG, when the person obliged to perform the service has his residence or place of business or place of management within the country.

In addition, in contrast to «normal» restricted tax liability, the tax rate applicable is that resulting from all income of the person. Under German tax law, this initially means the application of so-called full progression to a form of restricted tax liability (and no longer only, as was thus far the case, with unrestricted tax liability within the country). In other words, in determining the tax rate, all income within the meaning of § 2(3) EStG is (fictively) taken into account, thus also foreign income within the meaning of §§ 34c(1) EStG and 68 b EStDV, which is not applicable as a basis of taxation. The tax rate calculated from the «worldwide income» is applied to income subject to German tax liability (i.e., without foreign income within the meaning of § 34 c EStG) (cf. Hellwig, Ausgewählte Fragen zur erweiterten beschränkten Steuerpflicht, DStZ/A 1974, pp. 4 ff.).

II.

Subject matter in the proceedings below is the Complainant's income tax liability for the assessment period 1972.

1. The Complainant in the proceedings below is a German national. He shifted his place of residence on 15 December 1965 to Switzerland. He is only subject there to lump-sum taxation on his income. For this reason, he is considered to be a person «not resident in a State Party» within the meaning of Art. 4(6)(a) DBA 1971.

The responsible German tax office determined that the Complainant was subject in 1972 to extended restricted tax liability for his income from capital assets under § 20(1), No. 4 EStG 1971 (interest on loans) and from business operations within the meaning of § 15 EStG 1971 and in all other respects to general restricted income tax liability. With respect to the Complainant's income subject to general restricted income tax liability (§§ 1(2) and 49 EStG 1971), this has to do with

1. Income from capital assets within the meaning of §§ 20(1), No. 3 and 49(1), No. 5 EStG 1971 (interest on mortgage);

2. Income from leases (§§ 21 and 49(1), No. 6 EStG 1971)
a) of domestic real estate,
b) of delivery rights,
c) of printing rights, whereby in this case the income tax was retained by way of withholding tax pursuant to § 50 a EStG 1971.

The Complainant's income with respect to the leasing of delivery rights was negative; the negative amount of the leasings exceeded the sum of the -- positive -- income from other leasings and from business operations. The Tax Office set off the losses from the leasing of delivery rights with the remaining income from leasing and from business operations. However, the Tax Office refused to set off the losses from leasing still remaining with the -- much higher -- positive income received by the Complainant from capital assets, making reference in its ruling on the objection to § 50(2) EStG 1971.

2. The resulting complaint against the tax assessment was rejected by the Fiscal Court. It confirmed the Complainant's extended restricted income tax liability for the tax year 1972. This tax liability was not, said the Court, opposed by the Double Taxation Agreement of 1931/59, since for the year in dispute, the Double Taxation Agreement of 1971 was to be applied. Both this and the applicability of § 2 AStG to the assessment period 1972 do not violate the constitutional prohibition of retroactivity.

3. In his appeal, the Complainant attacked not only the, in his opinion, erroneous application of § 50(2) EStG 1971 to extended restricted tax liability but also the unconstitutionality of his being made subject whatsoever to this extended restricted tax liability. He asserted that § 2 AStG violates the prohibition of retroactively burdensome tax laws; for the same reason, he alleged the Consenting Act to the Double Taxation Agreement of 1971 to be null and void. He argued that it is impossible subsequently to attach detrimental tax consequences to his decision to shift his place of residence to Switzerland in 1965, an action completed prior to entry into force of the statutory regulations. He asserted that in any event, the application of the regulations to the tax assessment period 1972 is unconstitutional, since the commercial transactions giving rise to a tax liability were undertaken during 1972 yet before the entry into force of the new regulations.

The Tax Office opposed the Complainant's appeal. In addition, the Federal Minister of Finance, who joined the proceedings below pursuant to § 122(2) of the Fiscal Court Rules of Procedure, considered the appeal to be unfounded.

4. By order of 3 November 1982, the Federal Fiscal Court stayed the proceedings in order to obtain a decision by the Federal Constitutional Court whether:

a) § 20(1)(a) of the Act on the Taxation of Foreign Transactions (External Tax Act) of 8 September 1972 (BGBl. I, p. 1713) is compatible with the Basic Law for the Federal Republic of Germany to the extent that it prescribes the application of § 2(1) and (5), second sentence, of the External Tax Act for the period 1 January 1972 to 22 June 1972, and
b) Art. 1, first sentence, of the Act of 5 September 1972 on the Agreement between the Federal Republic of Germany and the Swiss Confederation for the Avoidance of Double Taxation in the Area of Tax on Income and Property of 11 August 1971 (BGBl. 1972 II, p. 1021) is compatible with the Basic Law for the Federal Republic of Germany to the extent that it refers to Arts. 30(1) and 32(2) of the Agreement and thereby deprives, for the period 1 January 1972 to 14 June 1972, those persons covered by Art. 4(6)(a) of the Agreement of the protection of the Agreement between the German Reich and the Swiss Confederation for the Avoidance of Double Taxation in the Area of Direct Tax and Inheritance Tax of 15 July 1931, in the version of the Additional Protocol of 20 March 1959 (RGBl. 1934 II, p. 38; BGBl. 1959 II, p. 1253)

The Federal Fiscal Court is of the view that the prescribed initial application of § 2 AStG as well as the new Double Taxation Agreement to the assessment period 1972 is unconstitutional to the extent that the relevant earning events had been realized prior to the enactment of the respective Acts by the Bundestag, i.e., prior to 14 June and 22 June, 1972. As a result, this represents impermissible retroactivity of the new regulations.

a) § 2 AStG was held to be basically applicable to the Complainant in the proceedings below. The Court held that the Complainant's income, made subject by the Tax Office to extended restricted income tax liability, is not subject to income tax liability solely on the basis of the general restricted income tax liability pursuant to § 49(1), No. 5 EStG. In particular, the special substantive prerequisites for this tax liability were lacking. In addition, the Complainant was held to enjoy preferential taxation in Switzerland, for which reason he was unable to claim the protection of the Double Taxation Agreement with Switzerland from 1971 (Art. 4(6)(a) DBA 1971). However, the Court ruled that the Fiscal Court incorrectly applied § 50(2) EStG 1971 also to the extended restricted tax liability under § 2 AStG. The Court stated the set-off of losses among the various types of income listed in § 50(2) is, in accordance with general opinion, based on the discharge principle of § 50(4) EStG. Since § 2(5), second sentence, AStG makes this principle inoperative -- in and of itself, having tax-favorable effects -- for the area of extended restricted income tax liability, there is also no reason to apply the prohibition of set-off under § 50(2) EStG. The sum of these positive and negative effects resulting from § 2(5), second sentence, AStG entail an increase of the Complainant's tax debt as compared with the state of the law that would have applied without the described provision of the External Tax Act. Thus, the issue is the constitutionality of § 2(5), second sentence, AStG.

b) With respect to the other submitted provisions as well, the lawfulness of their retroactivity to the period prior to the definitive adoption by the Bundestag was also held to be of relevance for the decision in the proceedings below: Should this retroactivity be constitutionally unobjectionable, then the appeal could be considered to be basically unfounded. The Court held that the Tax Office would then have correctly submitted to income tax the Complainant's income from capital assets (§ 20(1), No. 4 EStG) and from business operations. However, should the retroactivity provision found in § 20(1)(a) AStG be held to be unconstitutional and therefore null and void, then there would be lacking a legal basis for the taxation of the interest on loans and the revenues from business activities accruing to the Complainant between 1. January and 22. June, 1972. If the retroactivity of Art. 4(6)(a) DBA 1971 applied to the period before 14. June, 1972, then the (old) Double Taxation Agreement 1931/59 would instead apply to this period. As a result, regardless of the lawfulness of the retroactivity of the External Tax Act to the period before 22 June, 1972, the Complainant's domestic income received prior to 14 June, 1972 could not be made subject to German income tax, insofar as the Double Taxation Agreement 1931/59 assigned to Switzerland the right to tax this. The Court held that this might also have effects going beyond the circle of the Complainant's income covered by the External Tax Act. The rules in the Double Taxation Agreement 1931/59 also covered such income that, pursuant to § 49 EStG, was subject to "customary" restricted German income tax liability. In the proceedings below, this particularly applied, said the Court, to the interest on mortgages received by the Complainant, for which Switzerland has the right to tax under Art. 6 DBA 1931/59.

In all of these cases of invalidity of one or the other retroactivity rules, the Federal Fiscal Court held that it had to rescind the decision of the lower court and return the matter for renewed consideration, since thus far, no determinations had been made with respect to the Complainant's income as to what extent they accrued to him prior to 14 June and 22 June, 1972.

c) The submitted provisions were also held to be unconstitutional to the extent that they established for such income the extended restricted tax liability or eliminated the protection of the Double Taxation Agreement 1931/59, which the Complainant should have received in 1972 prior to the definitive adoption of the Acts by the Bundestag: they gave rise to tax burdens with effect of a date prior to promulgation. Thus, the provisions subsequently intervened in actions fully concluded and belonging to the past and changed the legal consequences attaching to these actions to the detriment of the citizen. This regulation is also not made permissible by the fact that, pursuant to § 2(1) EstG, income tax is an annual tax that in accordance with § 3(5), No. 1(c) of the Tax Harmonization Act and § 36(1) EStG 1975, first arises with the expiration of the tax assessment period. This only has to do with the technical aspect of taxation. Only with the expiration of the assessment period, which covers the entire calendar year, can the precise amount of the tax debt be calculated. Consequently, the determination and levying of taxes cannot take place prior to this date; in addition, the statute of limitations can only be clearly determined in all cases based on the course of the year. For this reason, the tax liability, on the other hand, is triggered during the course of the year as of the date on which the various income accrued to the taxpayer. This is particularly evident in those cases in which the tax liability is triggered by specific actions of the taxpayer -- e.g., by sale of participation in a business (§ 17 EStG). At the point at which such action is taken, the tax liability is in essence definitively established. This is not changed by the fact that the amount of the tax debt stemming from the action cannot yet be ascertained, since this depends on the taxpayer's overall income received during the entire assessment period. Only from this approach, said the Court, is the constitutional requirement of protection for bona fide acts satisfied: in his transactions, the citizen must be able to expect that the law triggers the established legal consequences within its temporal sphere of validity. With regard to tax-related statutory elements following from actions, the legal consequences must therefore be statutorily provided at the very moment of action. With regard to tax-related statutory elements following not from actions but rather from other events, the result is basically no different as applying to the date on which these events are concluded. For «assessed» (i.e., not levied by withholding tax) income tax, the tax debt comes about in a continuing process during the assessment period.

Moreover, a constitutional possibility to undertake burdensome amendments to tax laws during the current assessment year with effect for the entire duration of such a year would, without any material reason, place those taxpayers in a better position whose tax -- such as that on capital earnings pursuant to § 43 EStG 1971 -- had already been withheld at the moment of accrual of the relevant income. For such a taxpayer, the matter is concluded with the withholding tax, also with regard to the amount. On the other hand, those taxpayers with an equivalent tax but not paid by way of withholding tax, whose amount can only be ascertained after the end of the assessment period, must expect in such cases a higher tax burden than was statutorily provided at the time the income accrued.

The Court noted that for the Complainant's income at issue in the proceedings below from capital assets (interest on loans) and from business operations, the tax-related statutory elements (§ 20(1), No. 4; §§ 15 in conjunction with 4(3) EStG) were fulfilled with the accrual of the interest and the commissions. The same applies to the Complainant's income within the meaning of § 50a(4)(b) EStG, to the extent that this income accrued prior to the promulgation of the new regulations. At the time of its accrual, this income was solely subject to withholding tax with discharge effects pursuant to § 50(4), first sentence, EStG. By way of the withholding of this tax and its transfer to the Tax Office, the income tax liability was to this extent extinguished. Since under § 50(4) EStG, the tax only amounted to 25 % of revenues but the tax rate was normally higher within the framework of the income tax assessment -- as with the Complainant in the proceedings below, the subsequent elimination of the discharge effect and the inclusion of the income in the ascertainment of the assessed income tax normally has a detrimental effect on the affected taxpayer.

The Court also noted that in the same manner it represents an interference that the protection afforded by the Double Taxation Agreement of 1931/59 was eliminated by Art. 4(6)(a) DBA 1971 and its retroactive application to the entire assessment period 1972. The result is that the Complainant in the proceedings below was also subjected here as well to taxation that until this time had not been applicable to him. Affected by this was the income from capital assets accruing to the Complainant prior to the entry into force of the Agreement, i.e., before 29 December 1972. In resolving the question of whether this represents unconstitutional retroactivity, one must look with respect to consenting acts to international treaties at the date on which the treaty became binding under international law, i.e., in this case, pursuant to Art. 32(2) DBA 1971, at the date of the exchange of the instruments of ratification.

The Court held that the submitted provisions were only constitutionally unobjectionable for the period following the definitive decision by the Bundestag. To this extent, the taxpayer's reliance is then no longer deserving of protection, since he became aware, or can be expected to have become aware, at this point that the new regulation and its retroactive application were certainly soon to to be adopted. On the other hand, the desired effect of these laws prior to this date -- 14 and 22 June 1972 -- cannot be justified under the Constitution. The taxpayer could not expect that during this period the legislature would subsequently subject income already accrued to restricted taxation of income (by new regulation in the Double Taxation Agreement), which had thus far not been applicable to such income, or to extended restricted income tax liability (by creation of the External Tax Act). The Court held that this result was not affected by the «Guidelines» adopted by the Federal Government on 17 December 1970 and thereafter published. Although reference was made in the Guidelines to the planned extension of restricted income tax liability, which basically took the same form as later provided in § 2 AStG, this event was just as incapable of effecting a deprivation of protected reliance as was the submission of the draft acts by the Federal Government in December 1971 (AStG) and in March 1972 (DBA 1971). Pursuant to art. 77(1) Basic Law, federal laws are adopted by the Bundestag. It has been inferred from this in constitutional case law that the citizen's reliance on the continued validity of laws in force is only no longer deserving protection as of the date on which the Bundestag adopts a retroactive law; this also applies to laws consenting to an international treaty.

The Court also noted that the retroactive, burdensome amendment of the tax law situation was not justified by compelling reasons of public good, which take precedence to the requirement of legal certainty. The considerations offered by the Federal Government in No. 129 of the Reasoning accompanying the draft of the External Tax Act (BTDrucks. VI/2883, p. 31) were unconvincing at least with respect to § 2 AStG. It is not evident, said the Court, to what extent the sole objective of the new regulation -- «to contribute to the realization of the state of law based on social justice in the area of taxation» (No. 14, id. at p. 16) -- would be unable to be attained if the retroactive application of § 2 AStG attacked here were to be precluded. Although this would result in fewer tax revenues, the taxpayers would not, in view of the way in which the tax-related statutory elements were structured under § 2 AStG, have had any possibility to avoid taxation under the External Tax Act for the period following its adoption by the Bundestag, unless they sold their domestic sources of income, which they were still able to do following the entry into force of the External Tax Act. Therefore, even when retroactivity is precluded for the period prior to the decision by the Bundestag, the legislature's intentions would basically still have been able to have been realized. The mere desire for the soonest possible restoration of the (in view of the legislature) disturbed uniformity of taxation does not entitle an inteference with existing statutory elements of the law. The principle of legal certainty is of no lower rank than that of uniformity of taxation. The situation might only be different if unequal treatment between taypayers now subject under § 2 AStG to extended restricted tax liability and those subject to unrestricted tax liability had been arbitrary under the old law and thus unconstitutional. But this was not the case. On the contrary, there are a number of material reasons in support of the fact that persons subject to restricted tax liability -- even if they had important commercial interests in the country and had long been subject as Germans to unrestricted tax liability -- were treated differently than persons subject to unrestricted tax liability.

d) In view of its unambiguous wording, it is impossible to interpret the statutory provisions in conformity with the Constitution so as to avoid impermissible retroactivity. This is also opposed by the will of the legislature as derived from the historical background of these provisions.

III.

Opinions on this submission were made by the Federal Minister of Finance in the name of the Federal Government and by the Complainant in the proceedings below.

1. a) The Federal Minister of Finance considers the submission to be admissible. However, he stated that the subject of the proceedings must be seen as the application of the provisions to the income tax liability of the Complainant in the proceedings below for the entire year 1972: in contrast to the view of the Federal Fiscal Court, the law of income tax liability offers no legal basis for treating income accruing before the date viewed by the Federal Fiscal Court as relevant from income accuring subsequently and, if necessary, from the expenses incurred during the tax assessment period.

b) The Federal Minister of Finance asserts that the submitted regulations do not violate the Basic Law.

He states that this does not represent a case of so-called genuine retroactivity. Unrestricted protected reliance in the continued existence of the state of the law did not result for the Complainant in the proceedings below from the state of the law in force at the time of proclamation of the External Tax Act. The Income Tax Act of 1971, which henceforth exempted the income of the Complainant in the proceedings below that fell under § 2 AStG from income taxation, was incapable of engendering for the period up to the expiration of the tax assessment period 1972 unrestricted protected reliance for the individual in its continued existence. The legislature made it clear that the various aspects of the income tax law had only been provisionally regulated up until the expiration of the assessment period and thus were still subject to legal amendments with effect for this assessment period. This right to amend follows from the nature of income tax as an annual tax and thus as sectional taxation, which in turn gives effect to compelling material requirements and also corresponds to commercial practices. Only when income is measured within a fixed period can the individual's economic efficiency be disclosed, which income tax is required to register. Sectional levying of income tax is also called for because the tax creditors are dependent on the sectional receipt of tax revenues, such that assessment must take place at periodic dates. Moreover, the fact that income tax aims at annual economic results with respect to the seven types of income covered by it correlates with the profit determination in accordance with the principles of orderly bookkeeping or at least exhibits parallels to such bookkeeping. Under these circumstances, it is only logical that pursuant to statutory rules (§ 3(5), No. 1(c) Tax Harmonization Act, § 36(1) Income Tax Act [new version]), the final amount of income tax only can be determined with the expiration of the tax assessment period. Only at this point is it conclusively certain which income tax results on the basis of which norms and due to which events undertaken by the taypayer. Prior to this, a concrete, definitive legal commitment in the sense of a specific consequence of tax law is not existent. The tax-related statutory elements are at this point still open to tax-establishing, tax-increasing or tax-reducing events occasioned by the taxpayer, who is entitled to undertake such events up until the end of the tax assessment period. As long as the assessment period is still running, the norms of tax law are subject to a reservation; the individual's possibilities to structure his tax-related events is countered by the legislature's possibilities to structure the consequences of tax law. Therefore, unrestricted protected reliance in the existence of tax law can only be recognized following the end of the tax assessment period, once the consequences of tax law have been definitively established.

In contrast to the view of the Federal Fiscal Court, the Federal Minister of Finance asserts that it is not possible to assign income within the meaning of § 2(3) EStG (= § 2(1) EStG [new version]) or the various factors for calculating this to a certain section within the tax assessment period. In addition, prior to the expiration of the assessment period, income can only be estimated but not conclusively determined, particularly since the terms «income» and «profit» (§ 2(1), (4) EStG, § 2(2), (7) EStG [new version]), which are relevant for income taxation, are tied to the respective commercial results in the entire calendar year or business year. This commercial results cannot be assigned to sections of the pertinent period; during the course of the tax assessment period, they form mere calculation factors for the income tax to be determined following the end of the year. With this knowledge, numerous taxpayers undertake transactions, that are essential -- in the sense of a reduction in the tax burden -- for the overall commercial result, only immediately before the end of the year.

Insofar as the Federal Fiscal Court in the reasoning behind its deviating ruling made reference to certain cases in income, such as the sale of a business or of shares in corporations (§ 14, 16, 17 EStG), this has to do, said the Federal Minister of Finance, with special cases in which, typically, a one-time transaction leads to income. The position taken by the Federal Fiscal Court has, in addition, the unjustifiable yet unavoidable consequence that the rules of tax law must, for reasons of protected reliance, remain fixed as of the date of establishment of a source of income, such as by the taking up of independent or non-independent employment. The situation would be similar once investments or other transactions following from an established sources of income led to a change in the conditions of income. Also faulty is the reference made by the Federal Fiscal Court to § 43 EStG; for income subject to withholding tax, unrestricted protected reliance is, in accordance with general principles, only given as of the date of origin of the assessed income tax. It conforms with the legal view of the Federal Government that under the case law of the Federal Constitutional Court, a taxpayer may not, in cases in which the result of relevance for tax law first occurs at some time after to underlying transaction, rely on the unchanged continued existence of the state of tax law up until the realization of the tax-related statutory element. If the state of tax law is altered in the interim, the new provisions only give rise to «non-genuine» retroactivity, which is of great importance for the degree of the taxpayer's undoubtedly disappointed reliance. The situation is not different here.

c) The Consenting Act to the Double Taxation Agreement 1971 also does not give rise to «genuine» retroactivity simply because the announcement of the entry into force of the Treaty first occurred on 9 February 1973, thus at a date on which the taxation period 1972 was already concluded: With the enactment of the Consenting Act by the Bundestag on 14 June 1972, any protected reliance came to an end. As a result, this also has only to do with new regulations with «non-genuine» retroactivity.

d) The Federal Minister of Finance also stated that a subsequent complete invalidation of the legal position of the Complainant in the proceedings below, which can also lead in the case of «non-genuine» retroactivity to the unconstitutionality of the new regulations, did not ensue from either the External Tax Act nor from the Double Taxation Agreement 1971. The decisions of the fiscal courts do not reveal that as a result of the new taxation, the maintenance of the Complainant's commercial ties to Germany became worthless as of the start of 1972. Pursuant to the required balancing of the interests of taypayers with the public interests arguing in favor of the new regulations, the latter clearly outweigh. Since 1964 the Federal Government has consistently taken statutory action to eliminate the ever-growing tax advantages following from the shifting of residence to areas abroad with lower taxation. Following from the «Guidelines» of December 1970, this original intention was to have the External Tax Act enter into force retroactively by 1 January 1971. But simply because the tax assessment period 1971 expired prior to the adoption of the law, the initial application was then deferred to the assessment period 1972.

In the face of the interest of the general public pursued by way of the new regulations -- i.e., to terminate a legal situation deemed untenable -- the contrary interest of the affected taxpayers must give way. In addition, for the period up until the definitive adoption of the Act, there can also be no protected reliance in being able to retain or use as German or former German commercial interests in the territory of the Federal Republic of Germany without having to bear the accompanying domestic burdens. Moreover, the extent of the increase in the tax burden for the period at issue before the Federal Fiscal Court is limited. In weighing the interest in remaining spared from this tax burden, it must not be ignored that the new regulations had been foreseeable long before the start of the year 1972 by the «Guidelines» and the draft law for the External Tax Act. This applies equally to the very introduction of extended restricted tax liability and to the elimination of the (tax-favourable) discharge effect of § 50(4), first sentence, EStG by way of § 2(5), second sentence, AStG, likewise objected to by the Federal Fiscal Court with respect to its retroactivity. The withholding tax, to which was given discharge effect with regard to general restricted income tax liability, relates only to the form of levying of income tax, but not to the substantive regulations of tax law. To this extent as well, this only gives rise to «non-genuine» retroactivity. Just as the entire External Tax Act, this was justified in order to eliminate unreasonable tax advantages.

2. The Complainant in the proceedings below considers his subjection to extended restricted tax liability per se, but at least to that for the entire tax assessment period 1972, to be unconstitutional.

a) He holds § 20(2) AStG to represent impermissible «genuine« retroactivity. This provision ties tax liability to circumstances that had taken place up to 20 years prior to entry into force of the regulations. This follows from the requirement that «emigration» have ensued at least ten years prior to entry into force of the Act and from the additional statutory element that in the last ten years prior to emigration, unrestricted income tax liability as German existed for a total of at least five years. Although this does not involve an apparent case of «genuine» retroactivity, since § 20(2) AStG does not result in the subsequent increase in the tax of a year concluded prior to entry into force of the External Tax Act, it nevertheless also does not represent a case of only «non-genuine» retroactivity: The tax-related events described in § 20(2) in conjunction with § 2 AStG are alleged by the Complainant not to be «current, not yet concluded actions». Rather, conduct already concluded and no longer amendable is made here the basis for subsequently imposed taxation. This procedure, which can best be termed «masked genuine retroactivity», must be measured against the constitutional requirements set up by the Federal Constitutional Court for manifest «genuine» retroactivity. In accordance with these criteria, the regulation found in § 29(2) AStG is unconstitutional, since this results in a breach of reliance in the existing state of the law as was in place at the time of the conduct that the Act seeks to regulate. Reasons that would permit this as an exception are not present. At the time of his departure from the Federal territory, the Complainant was unable in the least to expect a taxation of the sort now imposed. At best, it is permissible under constitutional law to impose extended restricted tax liability -- or a corresponding extension of the circle of income subject to § 49 EStG to general restricted tax liability -- on such «emigrants» who shifted their residence abroad after 1972 to areas with lower taxation. Taxpayers who had renounced their residency in the Federal territory prior to this may not, for reasons of protected reliance, be covered by such new regulations.

b) The Complainant also asserts that in addition to the reservations voiced by the Federal Fiscal Court, § 2 AStG is also unconstitutional for the reason that in violation of art. 3 Basic Law, it contains an extension of restricted tax liability not for all taxpayers subject to restricted tax liability but rather only for «emgirants of German nationality». This has properly been termed abroad a «mistreatment of Germany's own nationals».

c) The Complainant further alleges that in any case the initial application of the External Tax Act on the initial loss of the protection of the Double Taxation Agreement 1931/59 in each case for the tax assessment year 1972 represents unconstitutional retroactivity with respect to the entire tax year. As correctly pointed out by the Federal Fiscal Court in the matter, «genuine» retroactivity is present with regard to an amendment of tax law when this covers commercial transactions previously made by the taxpayer. It therefore is erroneous, as are the case law of the Federal Constitutional Court and the holding of the Federal Fiscal Court, to view the reliance in the continued existence of the state of the law as being no longer protected as of the date on which the Bundestag definitively adopted the relevant Act. This perception of things fails to account for the special features of the further legislative process following the adoption of a law. It also fails to give adequate consideration to the special circumstances associated with consenting laws to international treaties.

aa) The Complainant notes that in justifying its view that protected reliance ends on the date of definitive adoption of a law by the Bundestag, the Federal Constitutional Court has underscored that as of this date the citizen must expect the new regulation. The Complainant asserts, however, that this is only correct if one presupposes a unity among the constitutional organs involved in the legislative process, such that the consent of the Bundesrat or the non-introduction of a mediation or objection procedure can be assumed, and if one further assumes that also the Federal President will sign the law. However, there can be no legal certainty that both will occur. This particularly applies to the conduct of the Bundesrat, even when at some given time there is no difference between its political majority and that in the Bundestag. If one is satisfied with the mere likelihood that the regulation will become law, then those affected by it would have to depend in an unconstitutional manner on pure speculation instead of receiving certainty on the future state of the law. In addition, those outside the legislative process are unable, and also usually cannot reasonably be expected, to obtain with the requisite certainty information regarding the adoption of laws and their precise contents. In no event do press, radio and television report on all cases, let alone with the details required by the affected parties for evaluating these laws. Practically speaking, the citizen is neither able nor can he be expected to follow the debates of the Bundestag. The certain knowledge of facts and of the precise contents of new regulations as are required for constitutional reasons are only gained by the citizen following proclamation of the law.

The Complainant also alleges that by using the date of adoption of a law by the Bundestag, dangerous repercussions are as well to be feared for the decision-making freedom of the constitutional organs subsequently involved in the legislative process. For instance, an amendment to the proposed law following adoption by the Bundestag should also only be able to take effect following proclamation, since such an amendment is not yet covered by the Bundestag's adoption of the law. At the same time, however, such an amendment necessarily results in the elimination of the allegedly permissible retroactivity desired for the original version of the law to the date of adoption by the Bundestag. Consequently, should the legislature amend the proposed new regulation at this late stage, it irrevocably loses the possibility to enact a regulation whatsoever retroactive to the date of adoption of the law. This could have inhibitive effects when such amendments are deemed necessary by the Bundesrat for political considerations or by the Federal President for constitutional reasons. Such inhibitions are incompatible with the constitutionally guaranteed decision-making freedom of these constitutional organs, as follows from arts. 77, 78 and 82(1) Basic Law. When the legislature considers a quick reaction to perceived deficiencies to be necessary, it is at liberty to work together with all involved constitutional organs to accelerate the legislative process as far as possible. If this is not adequately successful in a given case, then one is presented with a case of «genuine» retroactivity of the regulation to the period prior to proclamation. This retroactivity can then at best be justified for prevailing reasons of the public good. However, the Federal Fiscal Court has convincingly shown that such reasons are not present here.

bb) The Complainant further asserts that the Consenting Act to the Double Taxation Agreement 1971 was also unable to give rise to retroactivity for a certain period following its proclamation: This Act only became significant after the Agreement entered into force on 29 December 1972 by way of the exchange of instruments of ratification provided for in its Art. 32(2). It was neither legally nor factually certain that the Agreement would become binding under international law. Despite approval by the federal legislature, a number of international treaties, particularly double taxation agreements with other States, were not ratified at all or only years later. This fact was also accounted for by the Consenting Act itself in that Art. 3(2) provided for the requirement -- not called for by art. 59 Basic Law -- that the date of entry into force of the Agreement be published in the Federal Law Gazette. This requirement established for those affected by the Agreement protected reliance in the fact that they did not have to prepare themselves for the new regulation prior to the publication of entry into force. The exchange of instruments of ratification was incapable of eliminating this reliance, since this process took place without giving notice to those affected by the Agreement. Publication of the entry into force of the Agreement is thus decisive, and this first occurred following expiration of the tax assessment period 1972. Accordingly, those affected by it first received certain knowledge of the validity of the new regulations in 1973. The Complainant therefore alleges that it was unconstitutional that Art. 32(2) in conjunction with Art. 4(6)(a) DBA 1971 subsequently deprived him of the protection of the Double Taxation Agreement 1931/59 for the assessment period 1972.

d) To the extent that a date might nevertheless be fixed within the calendar year 1972 as a possible boundary for permissible retroactivity, the Complainant asserts that a distinction is necessary between income accrued before and after this date and that such a distinction cannot be opposed with the argument that the law of income tax does not recognize this. The objections raised by the Federal Minister of Finance in opposition to the view of the Federal Fiscal Court fail to take hold. The division of a calendar year into several assessment periods is legally possible and also common in other areas, such as with a shift between unrestricted and restricted tax liability. Particularly for income accruing before the fixed date and subject to withholding tax with discharge effect, this has the result that the inclusion of such income under the new regulations represents impermissible retroactivity.

B.
The submission is admissible.

1. a) Relevant for the decision in the proceedings below is the constitutionality of both the Consenting Act to the Double Taxation Agreement 1971 and the provisions of the External Tax Act submitted by the Federal Fiscal Court. This also applies to the extent that certain income of the Complainant in the proceedings below is affected by both regulations at once. The Complainant can only be lawfully subjected to the relevant income tax when both of these laws are -- to the extent of relevance to the decision here -- constitutional.

b) However, in contrast to the view of the submitting court, the unconstitutionality and invalidity of provisions of the Consenting Act to the Double Taxation Agreement 1971 would not lead to a «continued validity» of the materially relevant provisions of the Double Taxation Agreement 1931/59. With regard to the extent of its substantive scope of application, the Double Taxation Agreement 1971 made the Double Taxation Agreement 1931/59 internationally inoperative with the commencement of the former's temporal scope of application under international law, i.e., in the present context of 1 January 1972 (cf. Arts. 30(1), 32(2) DBA 1971). No objections appear to have been raised to the international permissibilty of the choice of this date, which was earlier than that of the exchange of the instruments of ratification. Therefore, as of this date German acts of consent to the earlier Agreement became invalid. This change in the international treaty situation would also remain unaffected by a declaration of invalidity with regard to the regulations contained in the new Consenting Act: Such a decision would not strip the new Agreement, to which domestic consent has been given by way of the Consenting Act, of its binding nature under international law and would not lead to a «reactivation» of the provisions of the old Double Taxation Agreement that had been effectively been made inoperative under international law. The German legislature also did not enact a corresponding domestic requirement that could take precedence in domestic application to the international situation.

However, this finding does not block the admissibility of the part of the submission relating to the Consenting Act to the Double Taxation Agreement 1971: To the extent that the legal reservations voiced by the submitting court are correct and the Consenting Act accordingly to be held null and void, those affected by it -- and thus also the Complainant in the proceedings below -- may not by virtue of the Constitution be subjected in any event to stiffer taxation than was materially permissible under the old Double Taxation Agreement 1931/59. For this reason, the Federal Fiscal Court must reach a different decision in the proceedings depending on whether the Consenting Act to the Double Taxation Agreement 1971 is valid or whether the provisions of this Act of relevance in the proceedings below are invalid.

2. The subject matter as outlined in the submission order does not meet with any reservations. Nevertheless, in light of the possible results of the constitutional review, it seems appropriate to extend the submission as regards temporal application of both Acts to the entire, regular income tax assessment period 1972, i.e., to the entire calendar year 1972 (cf. § 25(1) EStG 1971).

C.

The constitutional reservations expressed by the submitting court are in some respects not tenable. The submitted norms are incompatible with the principle of rule of law and therefore void insofar as they also claim validity for income accruing during the period 1 January 1972 up to and including the date of adoption of the law by the Bundestag to such persons who were only subject during this period under the originally decisive state of the law to the restricted income tax liability of § 1(2) EStG 1971 and for whom this liability, at least for the calendar year 1972, came to an end without replacement prior to the definitive adoption of the law, or -- if German income taxation had been permissible -- who would have been subject to it and for whom it would have come to an end too. The same applies to income accruing prior to the definitive adoption of the law by the Bundestag to such persons who were not subject during this period to any income tax liability whatsoever under the originally controlling state of the law and for whom such liability would also not have arisen in the remainder of the calendar year 1972, or -- if German income taxation had been permissible -- who would not have been subject to it and for whom it would not have arisen, too. Furthermore, the submitted provisions are in violation of the principle of rule of law and void insofar as they claim validity for such income accruing during the above-mentioned period that was subject under the originally controlling state of the law to withholding tax with discharge effect or -- if German income taxation of it had been permissible -- would have been subject to it. In all other respects, the norms submitted for review are consistent with the Constitution.

I.

There are no constitutional reservations to the taxation regulations contained in § 2(1) and (5), second sentence, AStG. In particular, it is compatible with the Basic Law that extended restricted income tax liability was also imposed on such persons formerly subject as Germans to unrestricted income tax liability who -- as the Complainant in the proceedings below -- shifted their residence abroad prior to the beginning of the calendar year 1972 to an area with lower taxation while retaining important commercial interests within the country. This does not represent constitutionally impermissible retroactivity.

1. a) Pursuant to the decision of the Federal Constitutional Court on the German-Austrian Legal Cooperation Treaty (BVerfGE 63, 343 [353]), a legal norm gives rise to retroactive effect when the start of its temporal scope of application is normatively fixed to a specific date that precedes the date on which the norm legally exists, i.e., has become valid. According to German constitutional law, norms become legally existent upon orderly proclamation, i.e., normally on the date of publication of the first part of the Law Gazette. On the other hand, it is, in the cited decision, not a question of the norm's temporal scope of application -- and thus not a question of its retroactive effect -- as regards whether the Legal Cooperation Treaty is also to be applied to such tax requirements that, as titles of execution, are based on tax notices that tax requirements became effective prior to the temporal scope of application of the Treaty, as in the instant case. This was rather termed a question of the norm's material scope of application (id. at 356).

b) With regard to this distinction between a norm's material and temporal scope of application, the essence of the matter is the distinction between the scope of the events covered by its statutory elements and the temporal scope of the legal consequences it imposes:

As was set forth in BVerfGE 63, 343 (353), a norm's temporal scope of application relates solely to the temporal assignment of the legal consequences it provides for as based on the date of proclamation of the norm. One must ask whether these legal consequences are to arise for a specific period prior to the date of proclamation of the norm (retroactive occasioning of legal consequences) or whether this is to take place for a period beginning after (or with) proclamation.

All other features contained in a norm relate, on the other hand, to the norm's material scope of application, i.e., they belong to its statutory elements. A norm's statutory elements display retroactive coverage when they make the occurrence of its legal consequences dependent on events from the period prior to its proclamation.

c) The constitutional standards must be specified in conformity with this distinction:

aa) The retroactive effect of legal consequences generally raises the issue of the protection of reliance in the continued existence of the legal consequences originally applying, which are then subsequently amended. Such a retroactive occasioning of legal consequences must thus primarily be measured against the general principles of rule of law, particularly protected reliance and legal certainty (cf. BVerfGE 45, 142 [167 f.]). In conjunction with these principles, however, consideration must also be given to those basic rights whose scope of protection has been detrimentally affected by the subsequently amended legal consequence.

bb) On the other hand, the retroactive coverage of statutory elements may principally affect basic rights that have «come into play» with the fulfillment of the respective statutory elements prior to proclamation of the norm (cf. BVerfGE 31, 275 [292 ff.]). The requisite evaluation of basic rights of course also takes into consideration the general principles of rule of law dealing with protection of reliance and legal certainty, as well as proportionality, and this in a manner as is generally performed in the interpretation and application of basic rights with regard to questions of substantive law.

cc) In view of the differentiation in the constitutional standards for, on the one hand, the retroactive coverage of statutory elements and, on the other, retroactive imposition of a norm's legal consequences, it is not wise to attempt to bring both areas under an all-embracing, uniform term. This term -- «retroactivity in the broadest sense» -- is incapable of revealing any constitutional standards whatsoever.

2. § 2(1) and (5), second sentence, AStG does not raise any questions of retroactive occasioning of legal consequences. The norm merely determines generally the cases in which extended restricted income tax liability as described there in detail is to take effect; the temporal occurrence of this tax liability is regulated in § 20(1)(a) AStG (see infra II).

3. At the same time, however, § 2(1) and (5), second sentence, AStG contains retroactive coverage of statutory elements to the extent that -- in conjunction with the other elements set forth there -- the termination of unrestricted income tax liability as German (i.e., the shifting of residence abroad, as detailed therein) is also taken as the point establishing coverage in those cases in which this shifting of residence already occurred prior to proclamation of the norm. This is also confirmed by the clarification found in § 20(2) AStG. This provides that the application of §§ 2 to 5 AStG is not affected by the fact that the unrestricted tax liability of a natural person already ended before 1 January 1972.

As results from the delineation of the mandated legal consequences to the first ten assessment years following the shifting of residence, the new income tax liability covers for the tax assessment year 1972 also those individuals who shifted their residence abroad during the years 1962 to 1971, insofar as the other elements also apply to them; this circle of persons includes the Complainant in the proceedings below, who moved to Switzerland in 1965; the same applies to the later assessment years. He will therefore -- assuming unchanged circumstances -- first be free of this tax liability for the income tax assessment year 1976. Retroactive coverage itself first becomes inapplicable in the assessment year 1982.

Also having retroactive coverage in all of these cases in the normative element according to which in the last ten years prior to the shifting of residence abroad, unrestricted income tax liability as German must have existed during at least five years (§ 2(1), first sentence, AStG). This retroactive coverage first becomes inapplicable in the income tax assessment year 1987.

On the other hand, the other statutory elements found in § 2(1) and (5), second sentence, AStG must be fulfilled as of the date of proclamation of the norm in the present and the future if extended income tax liability is to arise. The effect of these elements in the period prior to proclamation of the norm is irrelevant for the occurrenc of the consequences of tax law.

4. This retroactive coverage of the statutory elements of extended restricted income tax liability by § 2(1) and (5), second sentence, AStG, as well as the entire regulatory content of the provision, is not constitutionally objectionable. It does not violate basic rights of those affected by it, even in conjunction with general principles of rule of law.

a) For the constitutional evaluation of the norm, significant is the sense possessed by the statutory element of shifting of residence in conjunction with the circumstance that in the last ten years prior to this, unrestricted income tax liability as German must have existed during at least five years. These statutory elements are of central importance; the Act particularly seeks to have an effect on the «tax flight» of Germans with simultaneous maintenance of important commercial interests, whereas less importance is attributed to the tax liability arising, for instance, in the case of fulfillment of the statutory elements, which gives rise to additional tax revenues by the community (cf. Salditt, StuW 1972, p. 12 [18, 22]; Lipps, RIW/AWD 1972, p. 105 [107 f.]). This thus has to do with the typical case of conduct-steering taxation.

b) The standard of review for the coverage of this statutory element is primarily the basic rights that come into play with the fulfillment of the statutory element -- here, with the shifting of residence abroad. This shifting of residence abroad by a German -- just as with the mere temporary leaving of the country to this territory -- does not fall under the protection of art. 11 Basic Law.; freedom to leave the country is protected by art. 2(1) Basic Law and thus subject to the limitations set forth there (cf. BVerfGE 6, 32 [34 ff.]). The tax liability established in § 2(1) and (5), second sentence, AStG remains within the scope of the constitutional order, since it is both procedurally and substantively consistent with constitutional law (cf. BVerfGE 6, 32 [41]).

aa) This applies, on the one hand, to those cases in which residence is shifted so late after proclamation of the norm that the two statutory elements to be discussed here have -- for the relevant assessment year -- already been completely fulfilled in the period following proclamation of the norm.

The legislative authority of the Federation over income taxation -- including extended restricted taxation -- results from art. 105(2) Basic Law in conjunction with art. 106(3), first and second sentences, Basic Law (BVerfGE 36, 66 [70 f.]). When the decision to shift residence is sought to be influenced by imposing continuing domestic tax liability following the shifting of residence, this does not represent a disproportional means of State control of the individual's conduct, at least when this shifting of residence -- as is ensured here under the other elements of § 2(19 AStG -- is not even distantly equivalent to the conduct of a typical emigrant. This conduct is characterized by the fact that all important commercial ties to the previous State of residence come to an end; precisely these emigrants are excluded from extended restricted income tax liability by § 2(1) and (5), second sentence, AStG. But the more the affected person still takes part in domestic commercial life yet at the same time seeks to acquire tax advantages from the shifting of his residence, the less he is concerned with realizing his freedom to leave the country as is protected by art. 2(1) Basic Law. This also applies when the affected person -- as outlined by § 2(1) AStG -- renounced German nationality with the shifting of residence or less than five years previous to this. Such a -- former -- German seeks to enjoy the advantages of both legal systems without having to submit fully to the burdens of even one of them: he wants to live abroad and pay considerably fewer taxes than would be levied here with residence within the country. On the other hand, he also wants at the same time to remain commercially active to a substantial extent within the country instead of also shifting these activities abroad (and thereby probably losing his particularly beneficial tax situation). Such conduct of its nationals or former nationals need not be passively accepted by any State. On the contrary, it is permissible -- it might even seem to the legislature to be outright demanded for the maintenance of just taxation conditions within the country -- to reduce the incentive for such a «double play» by trimming its domestic tax advantages to the indispensible minimum. § 2(1) and (5), second sentence, AStG essentially remain within this framework of that permitted by rule of law and therefore also do not violate to this extent art. 2(1) Basic Law. Moreover, the tax pressure emanating from -- and intended by -- extended restricted income tax liability leaves the affected individual enough latitude to decide for or against the shifting of residence. Even when he adheres to his decision to shift residence, the new tax liability does not deprive him of the entire amount gained by the maintenance of domestic commercial interests.

bb) From the standpoint of constitutional law, the situation is no different when -- as with the Complainant in the proceedings below -- the shifting of residence (and thus also prior unrestricted income tax liability as German for at least five years) falls within the period prior to proclamation of the External Tax Act. Although in such cases the residence had already been shifted when the norm was proclaimed, this does not mean that the legislature's intention to steer conduct that is associated with extended restricted income tax liability is altogether unable to be realized here, or only in completely atypical cases. This does not rule out that an individual affected by this might take the newly arising tax liability as the occasion to consider whether to retain his foreign residence or return his residence within the country. It is no counter-argument that this will in no event occur in all cases. Nevertheless, such conduct is within the realm of the conceivable and is thus amenable to State control of conduct. In this regard, the constitutional authority to undertake this steering impulse cannot be doubted. The «half-heartedness» of the separation from the country, on which § 2(1) and (5), second sentence, AStG picks up, is not resolved with the shifting of residence but rather only with the renunciation of domestic commercial interests of considerable weight or with the return to the country.

It also may not be asserted in opposition to the constitutionality of the retroactive coverage of the statutory elements at issue here that these themselves placed the temporal boundaries mentioned above, such that the extended income tax liability in the first assessment year (1972) does not affect such a person who in 1961 or earlier gave up his residence in the Federal territory. It can tenably be assumed that after a certain duration of the sole foreign residence, also such a (former) German who continues to maintain important commercial interests within the country has become so imbedded in his new State of residence that he will not seriously consider the return from there to the country, at least not in view of the imposition of the tax burdens set down by § 2(1) and (5), second sentence, AStG. The temporal limitation on the retroactive coverage of the statutory elements thus represents a possible specification of one of the tenets of rule of law, the principle of proportionality; it exempts from the new consequence of tax law those persons for whom this -- in all respects, considerable -- legal consequence would be much greater than the no longer realistic State hope that they return to the Federal territory. Although in view of the necessity of setting a fixed date by which residence must have been shifted at the latest, this may result in certain hardship in individual cases in which the country was left only shortly after the fixed date, this is nevertheless acceptable as with all fixed date regulations as an unavoidable side effect of permissible statutory typification. In an adequate number of cases, the tax regulation bringing with it such hardship can here still fulfill its steering purpose. In addition, this hardship is all the less weighty in those cases in which the new tax liability will exist for a short period, that is, only for as many years as the affected person shifted his residence abroad following the fixed date.

c) Extended restricted income tax liability is also not, on account of its «throttling effect» on the types of income accrual affected by it (BVerfGE 63, 343 [368]) or for other reasons, incompatible with art. 14(1) Basic Law. In particular, the amount of the new tax liability normally does not -- as is ensured by § 2(6) AStG -- exceed that of the corresponding unrestricted income tax liability of a person resident within the country.

d) Finally, it is not a violation of art. 3(1) Basic Law that a person who exercises within the country the commercial activities described in § 2(1) AStG without having or, in the manner outlined there, having had German nationality is not subject to extended restricted income tax liability. It may be deemed a just, non-arbitrary consideration that aliens are not to be prevented from re-immigrating in their home country and also that no pressure to do so is to be exercised on such aliens who have returned abroad prior to proclamation of the External Tax Act or who never had their residence in the Federal territory.

II.

§ 20(1)(a) AStG, on the other hand, is not free in every respect of constitutional violations to the extent that -- as is the sole matter of review here -- it relates to § 2(1) and (5), second sentence, AStG.

§ 20(1)(a) AStG directs that the provisions of this Act are initially to be applied for income tax for the assessment period 1972, which extends from 1 January 1972 to 31 December 1972 (§ 25(1) EStG 1971). It thus provides for a time-based regulation both at the level of statutory elements and with respect to the legal consequences of the substantive tax norm.

1. Taxable is thus such income that accrued between 1 January 1972 and the day prior to the proclamation of the External Tax Act, i.e., 11 September 1972. To this extent, § 20(1)(a) in conjunction with § 2(1) and (5), second sentence, AStG attaches tax liability to events occurring before proclamation of the Act. At the same time, there takes places -- in sub-areas -- a retroactive amendment of the previously valid tax law situation to the detriment of those affected by the Act.

a) To the extent that this regulates the assessed income tax of such taxpayers for whom the assessment period 1972 covered, pursuant to § 25(1) EStG 1971, the full calendar year 1972, the legal consequences -- extended restricted income tax liability with respect to this income -- first arose, however, with the end of the year 1972 and thus only after the proclamation of the External Tax Act (see infra 2. a). The retroactive coverage of statutory elements, which is thus solely at issue here, to income obtained in 1972 in the period prior to proclamation of the Act is, as shown above at I. 1. c) bb), primarily to be measured against the basic rights that come into play with the obtaining of income. As with the substantive tax law regulation of § 2(1) and (5), second sentence, AStG, the result does not give rise to any constitutional objections (see infra 2. b).

b) At the same time, however, for those persons originally only subject in 1972 to restricted income tax liability that came to an end without replacement at least for the calendar year 1972 prior to 12 September 1972, the retroactive coverage of the statutory elements is accompanied by a (detrimental) amendment of the original legal consequences. The External Tax Act subsequently expands the circle of income made subject by it to tax liability and directs the corresponding re-calculation of tax debts arising under it. As follows from § 25(2), second sentence, EStG 1971, the tax assessment period for restricted income tax (§ 1(2) EStG 1971) came to an end at the latest for these taxpayers on 11 September 1972. At this time, their tax liability -- but only to the extent directed under the original state of the law -- had already been established (see infra 3. a). Due to the great weight had by the overall regulation on the side of the subsequent amendment of the legal consequences, the constitutional standard to be employed here is primarily the principle of rule of law (see supra I. 1. c) aa). This constitutional principle is violated by the directive of § 20(1)(a) AStG as based on § 2(1) and (5), second sentence, AStG with respect to the above-mentioned group of taxpayers to the extent that their restricted income tax liability came to an end before 22 June 1972. Only for the income of persons who had still been subject after 21 June 1972 under the originally controlling state of the law to restricted income tax liability is the directive of § 20(1)(a) AStG at issue here constitutionally unobjectionable. Constitutional reservations are also met with respect to income accruing between 1 January 1972 and 21 June 1972 to such persons who, under the originally controlling state of the law, were not subject during this period to any income tax liability whatsoever and for whom such liability also would not have arisen in the remainder of the calendar year 1972 (see infra 3. b).

c) Retroactive effect of statutory elements and, at the same time, retroactive amendment of legal consequences are also present with respect to such income of persons originally only subject to restricted tax liability that had been obtained between 1 January 1972 and the date of proclamation of the External Tax Act, i.e., up to and including 11 September 1972, and that had been subject during this period to withholding tax with discharge effect. The subsequent (detrimental) amendment of the original tax-related legal consequences lies in the fact that the discharge effect of § 50(4), first sentence, EStG 1971 was retroactively eliminated by § 2(5), second sentence, AStG with the result that this income was included in the calculation (in the «worldwide income» category) of the entire annual income tax debt (see infra 4. a). Only for income accruing at the earliest on the date of adoption of the External Tax Act by the Bundestag is the regulation causing this detriment -- § 20(1)(a) AStG -- constitutionally unobjectionable; but for such income accruing in the period prior to this, it violates the principle of rule of law and is null and void (see infra 4. b).

2. a) Under § 2(1) EStG 1971 (§ 2(7), second sentence, EStG 1985, BGBl. 1985 I, p. 977), income tax is measured according to income earned by the taxpayer within a calendar year. Pursuant to § 25(1) EStG 1971/1985, income tax is normally assessed, insofar as this takes place, following expiration of the assessment period in accordance with the income earned by the taxpayer within this period. As can be seen from the definition of terms in § 2(2), first sentence, EStG 1971 (§ 2(3) and (4) EStG 1985), (net) «income» (Einkommen) means in this regard the sum of all earnings (Einkünfte) stemming from the types of taxable earnings described in the Income Tax Act following deduction of (in particular) special expenses set forth in the Income Tax Act. Even within the various types of taxable earnings, a balancing of positive and negative earnings is initially undertaken with respect to the entire assessment period before the -- positive or negative -- total amount of earnings from each of the types of taxable earnings is calculated in the prescribed manner to ascertain the taxpayer's net income; this is made evident, for instance, by the definition of the terms «profit» (Gewinn) and «surplus» (Überschuß) in § 2(4), Nos. 1 and 2, EStG 1971 (§ 2(2), Nos. 1 and 2, EStG 1985).

With the exception of special laws, such as in § 25(2) EStG 1971/1985 (see infra 3. a), the principle of ascertaining earnings and income on an annual basis runs through the entire spectrum of income tax law. Furthermore, at the time the External Tax Act was proclaimed, the provision in § 3(5), No. 1(c), of the Tax Harmonization Act (cf., presently, § 36(1) EStG 1985) directed that the income tax debt from the assessed income tax arises with the expiration of the tax assessment period.

As a result, the legal consequences of the provisions of income tax law that regulate the tax liability of certain earnings always take effect with respect to the assessed income tax with the expiration of the tax assessment period, i.e., in the normal case of § 25(1) EStG 1971/1985, with expiration of the calendar year in which earnings were obtained. Only when a norm proclaimed after expiration of the assessment period subsequently amends with effect for this period the tax law consequences originally in force one is faced with a retroactive legal consequence. In all other cases in which the amendment is proclaimed during the course of the assessment period, this merely represents a redefinition of a legal consequence that has thus far not taken effect.

In accordance with these criteria, the directive of § 20(1)(a) AStG -- that the legal consequences of § 2(1) and (5), second sentence, AStG are also to take effect «for the assessment period 1972» -- does not engender any retroactivity in the normal cases of assessed income tax as described in § 25(1) EStG 1971. In addition, to the extent that this directive applies to statutory elements defining earnings that were fulfilled prior to the proclamation of the norm, the legal consequence -- namely, the (newly regulated) income tax liability of these earnings -- first takes effect for the normal case of § 25(1) EStG 1971 with the expiration of the calendar year 1972 and thus after the proclamation of the External Tax Act on 11 September 1972.

b) The standard for the constitutional review of this directive's future legal consequences (also) following from its application to statutory elements belonging to the past is, as demonstrated above at I. 1. c) bb), principally composed of the basic rights coming into play with the fulfillment of the statutory elements. Depending on the type of affected earnings and the manner in which they were obtained, particularly art. 12(1) Basic Law, art. 14(1) and (2) Basic Law and art. 2(1) Basic Law come under consideration.

In conjunction with the principle of rule of law (see supra I. 1. c) bb), all of these basic rights have in common with respect to detrimental new tax regulations of the kind at issue here the fact that they shield the (resulting) taxpayer against the breach of protected reliance. In a State governed by the rule of law, the taxpayer must essentially be able to rely up to the date of proclamation of a new tax regulation that earnings that he has thus far accrued will not be subsequently subjected to a more severe tax burden than had thus far applied to them. On the other hand, by virtue of the Constitution, the legislature is basically not prevented from stiffening for the future the tax consequences of conduct lying in the past.

It must in principle be possible for the legislature to react to changed social situations with an amendment of its set of norms by resorting to the retroactive coverage of statutory elements, which includes a change in the future legal consequences of these elements, or to influence specific social situations in a specific sense by way of such an amendment. This is only not the case when either the legislature's action lacks a material reason and thus is arbitrary within the meaning of art. 3(1) Basic Law or when, regardless of whether it is supported by material reasons, the new regulation must by way of exception give way to the predominating protected reliance of those affected by it, which is aimed at guaranteeing the (more favorable) legal consequence to be expected under the originally controlling state of the law.

Such protected reliance here does not lie in the -- subsequently breached -- hope of those affected that the income-earning events undertaken or introduced by them prior to proclamation of the External Tax Act will not trigger after expiration of the assessment year 1972 less favorable consequences of tax law than were to be expected under the originally controlling state of the law. Rather, as was correctly described by the Federal Minister of Finance in his remarks (although, in contrast to his position, only for the normal case of § 25(1) EStG 1971), the original imposition of legal consequences from the outset merely had to do with a provisional, normative regulation subject to timely -- as well as detrimental -- amendment. Those who take part in tax transactions, particularly when they belong to the circle of persons now covered by § 2(1) and (5), second sentence, AStG, have always known that the law of income tax is provisional prior to the expiration of the assessment period. Not infrequently do they intentionally structure their commercial conduct in this knowledge, such as when they undertake certain events having an impact on income tax only near the end of the calendar year, since it is most unlikely that there will then be time for the legislature to subject the tax-related legal consequences of these events to more burdensome new regulations.

Under these circumstances, the basic rights of those affected, together with the principle of rule of law, did not prevent the legislature from enacting the described regulation in § 20(1)(a) AStG in conjunction with § 2(1) and (5), second sentence, AStG.

3. a) This situation is, however, different to the extent that § 20(1)(a) AStG also directs the application of § 2(1) and (5), second sentence, AStG to income accruing between 1 January 1972 and the date prior to proclamation of the Act -- i.e., 11 September 1972 -- to such taxpayers who were only subject during this period under the originally controlling state of the law to the restricted income tax liability of § 1(2) EStG 1971 and for whom this tax liability had come to an end without replacement, at least for the calendar year 1972, prior to 12 September 1972, i.e., for whom this was not replaced by an immediate or later (but in any event still within the calendar year 1972) imposition of unrestricted income tax liability or the new imposition of (customary) restricted income tax liability. The same applies with respect to income accruing between 1 January 1972 and 11 September 1972 to such persons who were not subject during this period under the originally controlling state of the law to an income tax liability whatsoever and for whom such liability would also not have arisen during the remainder of the calendar year 1972, whether in the form of restricted or unrestricted income tax liability.

With regard to the first group of cases, the assessment of income tax on the affected persons pursuant to § 25(2), second sentence, EStG 1971 immediately after the loss of restricted income tax liability, i.e., prior to the proclamation of the External Tax Act, was permissible. Despite the description of the assessment period as the (full) calendar year (§ 25(1) EStG 1971/1985), the permissibility of this assessment -- regardless of when it was undertaken -- presupposes that the tax debt also arose at the latest on the date of the permissibility of the assessment. The income tax debt of persons who in 1972 were no longer subject without substitution to restricted income tax liability on the day prior to proclamation of the External Tax Act had already arose prior to the proclamation of this Act. As a result, with regard to the second group of cases, the exemption from income tax of income accruing between 1 January 1972 and 11 September 1972 had already been definitively established prior to proclamation of the External Tax Act.

In that § 20(1)(a) AStG also directs the application of § 2(1) and (5), second sentence, to the income of both of these groups of affected persons accruing in the designated period, it not only applies (as in the other cases) to statutory elements belonging to the past but also retroactively (and, typically, detrimentally) amends the tax-related legal consequences of past action fulfilling these statutory elements.

b) The constitutional standard for the permissibility of a legal amendment applying to past facts and at once extending legal consequences into the past is -- on account of the great weight of the overall set of regulations on the side of legal consequences -- primarily the principle of rule of law in art. 20(3) Basic Law in conjunction with the basic rights affected by the directed legal consequences (see supra I. 1. c) aa). Under the Basic Law's principle of rule of law, special justification is always required when a subsequently burdensome amendment of legal consequences that have already arisen with regard to conduct belong to the past is to be deemed permissible by way of exception. In reviewing the possible reasons for such justification, it must also be taken into consideration that the regulation must at the same time be measured against the basic rights that have come into play (see supra I. 1. c) aa).

This type of an amendment of legal consequences can only be justified for the period following the definitive adoption of the Act by the Bundestag, 22 June 1972. Justification is lacking for the period prior to this adoption, from 1 January 1972 to 21 June 1972.

aa) The Basic Law's principle of rule of law place narrow boundaries on the authority of the legislature to extend the imposition of detrimental legal consequences to a period prior to the proclamation of a law. It may not be inferred from art. 103(2) Basic Law, which establishes a prohibition of retroactivity for the substantive norms of criminal law, that retroactivity in all other cases is constitutionally unobjectionable. The dependability of the legal system is a fundamental condition of democratic constitutions. It would seriously endanger the individual's liberty if public authority were to be allowed without restriction subsequently to attach to his conduct or to circumstances affecting him legal consequences that are more burdensome than were those directed at the time this conduct was completed or these circumstances occurred under the law then in force. This moreover applies in those areas -- such as here -- where the ordered retroactivity is accompanied by the application of statutory elements to circumstances essentially belonging to the past (cf. BVerfGE 30, 272 [285]; consistent holdings).

In the case law of the Federal Constitutional Court, such reasons for justification have been developed for various types of cases. These are not exhaustive. They are manifestations of the underlying concept that alone compelling reasons of public welfare or an absence of protected reliance of the individual can justify or even call for a rescinding of the prohibition of retroactivity in favor of the legislature's freedom in structuring laws.

Should there, in this sense, be a reason that by virtue of the Constitution justifies the rescinding of the prohibition of retroactivity, then in so doing, this may not lead to results that violate the protection given to the core of basic rights affected by the interference -- whether by subsequent amendment of legal consequences or by retroactive coverage for statutory elements. Using the example of protection of property, this means that the boundaries of art. 14(1), first sentence, and (3) Basic Law on permissible expropriation may not be undermined by ordering retroactivity (BVerfGE 13, 261 [272]; 30, 367 [387 ff.]; consistent holdings).

bb) (1) Of the possible reasons for justification of the amendment of the tax-related legal consequences at issue here, it is not possible to resort to the exception for so-called petty fact patterns. As can be seen from § 2(1), second sentence, AStG, extended restricted income tax liability only takes effect for such assessment periods in which all of the given taxpayer's income subject hereunder to restricted tax liability amounts to more than DM 32,000. When the extension of restricted income tax liability, as is undertaken by § 2(1), first sentence, AStG, leads to the taxation of income of this order of magnitude, it typically results in a considerably higher tax burden for the period of tax liability than was provided for under the state of the law in force prior to proclamation of the External Tax Act. This particularly applies with respect to the elimination of the discharge effect found in § 50(4), first sentence, EStG 1971 by § 2(5), second sentence, AStG to the extent that income within the meaning of the income tax regulation was earned during the period of relevance. The amount of the increased tax burden most certainly is considerable in those cases in which the External Tax Act first led to income tax liability and income tax debt whatsoever for a taxpayer's income earned between 1 January 1972 and 11 September 1972.

(2) In addition, prior to proclamation of the External Tax Act, it cannot be said that in the area in question the state of the law was unclear or ambiguous, which might be able to justify its being replaced with an unambiguous yet in some cases more burdensome regulation (see BVerfGE 13, 261 [272]; 30, 367 [388 f.]). It followed clearly and unambiguously from §§ 1(2) and 49 EStG 1971 that the income of taxpayers other than those subject to unrestricted income tax liability was tax-free if it did not fall there under restricted income tax liability. The same applies to the discharge effect in § 50(4), first sentence, EStG 1971.

(3) It also cannot be asserted that § 2(1) and (5), second sentence, AStG, closed with effect from 1 January 1972 an unconstitutional gap in the previous system of domestic income taxation, whose continued existence was at no time able to be relied upon (cf. BVerfGE 13, 261 [272]). This raises the requirement flowing from art. 3(1) Basic Law -- possibly in conjunction with other affected basic rights -- of uniform taxation according to capability (cf. -- especially for income tax law -- the recent decisions in BVerfGE 68, 143 [152 f.]; 61, 319 [343 f.]); this requirement does not prevent the exemption from income tax provided for under the former state of the law for such income of the now affected circle of persons that typically demonstrates fewer close connections with the country than exist with other income of these persons or with the same income earned by persons residing within the country. The order of the discharge effect by § 50(4), first sentence, EStG 1971 also continued to be consistent with constitutional law for the circle of persons covered by the External Tax Act.

(4) Finally, the historical background of the External Tax Act does not prove that the amendment of tax law at issue here was called for by «compelling reasons of public welfare» (BVerfGE 13, 261 [272]; 30, 367 [390 f.]). The Federal Fiscal Court convincingly demonstrated in its submission order that such reasons are not present.

(5) However, beginning on the day of adoption of the External Tax Act by the Bundestag, those affected by the new regulation were no longer able to claim protected reliance in the continued existence of the original state of the law. As of this day, those affected had to expect proclamation and entry into force of the new regulations. It could therefore be reasonably required of them that they arrange their ensuing conduct to meet with the contents of these regulations. Under these circumstances, it was permissible for the legislature to extend the temporal scope of application of the regulations at issue here to the period between adoption of the Act and its proclamation -- but not for the period prior to adoption.

The Federal Constitutional Court has consistently held that protected reliance in the existence of legal consequences normally comes to an end on the date of definitive adoption of new regulations (cf., e.g., BVerfGE 30, 272 [287]). At the same time, however, the Court has repeatedly stressed that the making known of legislative initiatives and the public reporting of the development of a new regulation by legislative bodies do not yet deprive reliance of protection (BVerfGE, id.). This case law also applies to the matter in dispute here, even after consideration of the objections submitted in opposition to it particularly by the Complainant in the proceedings below.

Every determination of a date controlling as to the end of protected reliance in the previous state of the law necessarily constitutes a balancing between opposing interests. This case has to do with, on the one hand, the interest of the individual -- which follows from the rule of law but also ultimately ensues from the essence of human rights and the concept of liberty -- that he need only submit to a new regulation when it has become definitively binding and he can inform himself precisely as to its full contents. From this standpoint, the best possible solution would be the continued existence of protected reliance until the new regulation has been proclaimed. This interest is countered by the State's interest that a new regulation considered necessary by the legislature «take hold» as soon as possible so as to restrict extensively the temporal possibilities for circumventing it and thus reducing the desired political result. This purpose would best be served by depriving reliance of its protection at the latest with the submission of the draft of the new regulation.

Relatively speaking, the best balance in this interplay is to aim at the date of the definitive adoption of the law by the Bundestag -- subject to readoption pursuant to art. 77(2) to (4) Basic Law. This does not neglect either of the two opposing interests and does not run counter to their respective constitutional positions.

In cases in which -- as with the regulations of the External Tax Act at issue here -- the political situation makes the enactment of the new statutory regulation from the outset seem nearly inevitable, the definitive adoption by the Bundestag also represents an important milestone on the path to becoming law. By way of this adoption, the most essential factor of uncertainty -- though not necessarily the only one or the last one -- is eliminated as regards the «whether» and the «how» of the new regulation. This both justifies and requires that in such cases as well, protected reliance does not end prior to adoption of the law. At the same time, as of this date the interim result of the legislative process is manifestly evident, of which everyone can take note. Even though on account of the co-responsibilities of the Bundesrat, it is not yet entirely certain whether the law will be definitively enacted and, assuming this to be the case, what its precise contents will be, it does not run counter to the principle of rule of law or to basic rights when the individual is not allowed at least as of this point to continue to rely on the future existence of the state of the law in force thus far.

In the present case, moreover, the correctness of these considerations is underscored by special nature of the circle of persons affected by the legal amendment and their lively participation in the development of the new regulation, including by way of written contributions by members of the tax-counselling professions.

For this reason, the directive of § 20(1)(a) AStG as based on § 2(1) and (5), second sentence, AStG in the areas at issue here (supra aa) is only unconstitutional for violation of the principle of rule of law and therefore null and void to the extent that its temporal scope of application extends to the period between 1 January 1972 to 21 June 1972.

4. a) Retroactive coverage for statutory elements and retroactive amendment of legal consequences also coincide to the extent that the directive of § 20(1)(a) AStG as based on § 2(1) and (5), second sentence, AStG is extended to such income accruing to the taxpayer between 1 January 1972 and 21 June 1972 and subject under the originally controlling state of the law to withholding tax with discharge effect. That such income also falls within the purview of the retroactive coverage of statutory elements as regards extended restricted income tax liability follows directly from these provisions. The retroactive amendment of legal consequences is in any event established by the fact that § 2(5), second sentence, AStG subsequently eliminated the discharge effect -- which arose for this income under the originally controlling state of the law, § 50(4), first sentence, EStG 1971 -- of income tax paid by way of withholding tax (under the normal restricted income tax liability of § 1(2) EStG 1971). This results in the taxation of such income under the «worldwide income» schedule pursuant to extended restricted income tax liability (§ 2(5), first sentence, AStG). To the extent that, as usual, the tax rate for withheld tax was considerably lower than that which results from «worldwide income» under extended restricted income tax, this entails for the affected income a subsequent increase in the tax debt levied on it.

Essential for the determination of a retroactive amendment of tax-related legal consequences is here the circumstance that in accordance with express statutory directive, the taxation of the income at issue here was «discharged» with the remittal of the income tax levied by way of withholding tax, i.e., it was terminated in every respect. This withholding tax had the effect that the income tax debt -- which thus had previously arisen -- on this income (cf. also § 3(5), No. 1(a), Tax Harmonization Act) was paid and extinguished. The state of the law is fundamentally different than with income subject to assessed -- restricted or unrestricted -- income tax, for which the income tax debt first arises with the expiration of the assessment period (see supra 2. a) or, as the case may be, first with lapsing of income tax liability without substitution before the end of the year. (see supra 3. a)

b) For the reasons set forth above at 3. b), this retroactive amendment of the tax-related legal consequences regarding events in the past can also only be constitutionally accepted to the extent that its temporal scope of application extends to the period between definitive adoption of the External Tax Act by the Bundestag and its proclamation. On the other hand, it is constitutionally not acceptable for income accruing between 1 January 1972 and 21 June 1972 that had been subject to withholding tax with discharge effect; § 20(1)(a) AStG is, insofar as it is based on § 2(1) and (5), second sentence, AStG, in this extent unconstitutional and therefore null and void.

III.

For the groups of cases equivalent to those criticized with regard to the External Tax Act (see supra II. 3. and 4.), the retroactive amendment of domestic German legal consequences by way of the Consenting Act to the new Double Taxation Agreement between the Federal Republic of Germany and the Swiss Confederation of 11 August 1971 is also constitutionally not acceptable. To this extent, Art. 1(1) of the German Consenting Act to this Agreement is unconstitutional for violation of the principle of rule of law and therefore null and void; the domestic application of Arts. 30(1) and 32(2) in conjunction with Art. 4(6)(a) of this Double Taxation Agreement by the Federal Republic of Germany is thus prevented by virtue of the Constitution. On the other hand, the domestic directive of validity contained in Art. 1(1) of the Consenting Act, which aims at Art. 4(6)(a) and -- as based on this -- at Arts. 30(1) and 32(2) DBA 1971, is constitutional in all other respects.

1. The German Consenting Act to the Double Taxation Agreement 1971 is constitutionally unobjectionable to the extent that it is directly based on Art. 4(6)(a) of the Agreement. This Treaty provision does not itself state how its directive of legal consequences -- which are essentially more burdensome -- is initially to be applied, i.e., whether it gives retroactive coverage to statutory elements or retroactively amends legal consequences. It solely directs that not considered to be «resident in one State Party» within the meaning of the Agreement is «a natural person who in the State Party in which he, pursuant to the foregoing provisions, would be considered resident is not subject with all income from the other State Party, which is generally liable to tax under the tax law of the State of residence, to the taxes generally imposed». A person who accordingly enjoys preferential taxation in the State of residence thus does not fall under the protection of the new Double Taxation Agreement against simultaneous taxation in both States Parties: Pursuant to Art. 1, the Agreement from the very outset only accords this protection to such persons «who are resident in one or in both States Parties».

This elimination of the previously valid protection against double taxation -- in the case of the Complainant in the proceedings below, from Art. 6(1) DBA 1931/59 -- for the described circle of persons is in principle not constitutionally objectionable. In view of the existence (§ 1(2) EStG 1971) or the imminent establishment of tax liability, this of course has to do with a detrimental directive of legal consequences, as with the establishment of domestic tax liability previously not existent in such a form (cf. BVerfGE 30, 272 [285 f.]). However, it can be justified under the Constitution for the same reasons as with the substantive regulation of § 2(1) and (5), second sentence, AStG (see supra I. 4.); this also applies where an affected person -- as here with the Complainant in the proceedings below -- had already taken residence in the other State Party prior to the date controlling for the determination of retroactive coverage and retroactive effect (see infra 2.). If a person receives taxable income in the State in which he is not resident but is not subject with regard to this income to the taxes generally imposed in the other State, then it cannot be said that by way of his conduct he has (as with the circle of taxpayers described in § 2(1) AStG, which largely includes the same persons) opted for at least one of the two States Parties and its constitutional, legal and tax order in such an unambiguous manner that his protection against simultaneous taxation of the income at issue in both States is likely called for by German constitutional law.

2. Pursuant to Art. 32 of the Double Taxation Agreement 1971, the Agreement became binding under international law with the exchange of instruments of ratification. At the same time, this Treaty provision established the (initial) application of the Agreement both to taxes on income accruing after 31 December 1971 that was levied by way of withholding tax and to other taxes levied for 1972 and following years. Pursuant to Art. 30(1) of the new Agreement, the old Double Taxation Agreement Germany-Switzerland 1931/59 became inoperative with the entry into force of the new Agreement insofar as Section I of the old Agreement applied to direct taxes; the latter's provisions in this regard no longer find personal, material and temporal application to taxes on which Art. 32 of the new Agreement is to be applied. With respect to the income described in Art. 32(2) DBA 1971, the protection against double taxation flowing from the old Double Taxation Agreement was thereby extinguished for the circle of persons now falling under Art. 4(6)(a) DBA 1971; this also applies to the extent that relevant income accrued in 1972. Insofar as it is imposed under the controlling German income tax law -- including § 2 AStG -- German income taxation of this income is therefore no longer prohibited by virtue of the Treaty.

a) With regard to the extent to which the German statutory consent to an international treaty regulation encompasses retroactive coverage for statutory elements or retroactive amendment of legal consequences, the Federal Constitutional Court had occasion to comment on this question in its ruling on the German-Austrian Legal Cooperation Treaty (BVerfGE 63, 343 [354 f.]). It was held that a distinction had to be made between retroactivity on the international level and that on the domestic level. Retroactivity of the treaty on the international level is to be found when the start of its temporal scope of application is fixed on a date occurring prior to the conclusion of the treaty; retroactivity on the domestic level is to be found when the start of its international temporal scope of application is fixed on a date occurring prior to the official domestic announcement that the treaty has been concluded (BVerfGE 63,343 [355]). In the present context as well, it must be observed that the question of retroactivity consistently raises two separate groups of problems: the possible retroactive coverage of statutory elements, and the possible retroactive introduction of legal consequences less favorable than those under the originally state of the law (see supra I. 1. b).

b) As a result, it follows for the German Consenting Act to the Double Taxation Agreement 1971, insofar as a decision is to be reached here:

aa) Pursuant to Art. 32(1), first half-sentence, the Agreement came about internationally with the exchange of instruments of ratification; this exchange took place on 29 December 1972 and was made known domestically by the announcement of 19 January 1973, published in the Federal Law Gazette on 9 February 1973 (BGBl. II, p. 74). In that the Agreement also temporally extends its material scope of application for the law of income tax to income accruing in 1972 (Art. 32(2), second half-sentence, DBA 1971), it took on retroactivity on the international level for the period 1 January 1972 to 28 December 1972. The backreach consists, on the one hand, of retroactive coverage of statutory elements, since also regulated is the domestic taxability of such income that had already accrued to persons subject to tax liability under the domestic law of income tax prior to the date on which the Agreement became internationally binding. On the other hand, this retroactive coverage of statutory elements is also accompanied in sub-areas by a retroactive, detrimental amendment of legal consequences. Affected by this are those persons whose domestic tax debt -- disregarding the international barrier to taxation first erected by the new Double Taxation Agreement -- would already have arisen or definitively would not have arisen before the day on which the new Agreement became internationally binding. To the extent that these persons were protected by the old Double Taxation Agreement -- with regard to the Complainant in the proceedings below, by Art. 6(1) -- against German taxation and this protection now lapses, this involves -- since the old Treaty norm also endowed the private individual with a subjective legal status, i.e., did not merely establish rights and duties in the international relationship -- a detrimental amendment of the legal consequences stemming from conduct that become the object of regulation by way of the retroactive coverage of statutory events.

This affects the income accruing between 1 January 1972 and 28 December 1972 to such persons who, under the originally controlling state of the law (assuming German income taxation to have been permissible), either were only subject in this period to the restricted income tax liability of § 1(2) EStG 1971 and for whom this liability came to an end without substitution before 29 December 1972 at least for the calendar year 1972 (for the meaning of «without substitution», cf. supra II. 3. a) or who in this period were not subject to any German income tax liability whatsoever and for whom such liability would also not have arisen for the remainder of the calendar year 1972 (cf., analogously, supra II. 3. a). Furthemore, also affected is that income -- expressly mentioned by Art. 32(2)(a) DBA 1971 -- accruing to the taxpayer between 1 January 1972 and 28 December 1972 that would have been subject under the originally decisive state of the law (assuming German income taxation to have been permissible) to withholding tax with discharge effect (cf., analogously, supra II. 4. a).

On the other hand, for the reasons set forth supra at II. 2., a retroactive amendment of legal consequences did not take place for income to be levied with assessed income tax that accrued to those persons for whom the German income tax liability under the originally controlling state of the law (assuming German income taxation to have been permissible) did not end without substitution before 29 December 1972. The same applies to income accruing since 29 December 1972 to such persons who for the year 1972 have for the first time been subjected to German income taxation by way of the Consenting Act to the Double Taxation Agreement 1971. In accordance with that set forth supra at 1., it is not constitutionally objectionable to place retroactively on the former income group the subsequently -- i.e., only after the Treaty becomes internationally binding -- arising legal consequence of imposition of assessed German income tax. With regard to the latter income group, there is no retroactive coverage of statutory elements.

bb) Regarding the question of retroactivity on the domestic level, the following should be noted: The start of the international temporal scope of application was normatively established as 1 January 1972 both with regard to statutory elements and with respect to the amendment of legal consequences. The official domestic announcement that the new Double Taxation Agreement had entered into force was made by the Federal Republic of Germany in the Federal Law Gazette on 9 February 1973 (BGBl. II, p. 74). Retroactivity is thus present for the period 1 January 1972 to 8 February 1973.

In addition to those already affected by international retroactivity, also affected by retroactivity on the domestic level are all other persons now falling under Art. 4(6)(a) DBA 1971 who, under this provision in conjunction with German income tax law, for the assessment period 1972 owe German income tax that they would not have owed whatsoever, or at least not in this amount, under the originally decisive state of the law: Between the ratification of the Treaty on 29 December 1972 and the domestic announcement of its international entry into force on 9 February 1973, the calendar year 1972 and thus the assessment period 1972 had also expired under the general provision of § 25(1) EStG 1971. Tax liability and tax debt stemming from this calendar year -- whether by assessment or withholding tax with discharge effect -- had therefore in all cases -- under the originally decisive state of the law -- already definitively arisen only to a limited amount, or definitively not arisen, prior to the domestic announcement of international entry into force.

c) From the standpoint of constitutional law, this finding of backreaching amendment of law is not to be merited differently than retroactive coverage of statutory elements and retroactive amendment of legal consequences by the provisions of the External Tax Act reviewed here (see supra II. 3. b) and II. 4. b): The controlling date for the lapse of the previously existing protected reliance in the original state of the law is, for consenting acts to international treaties as well, definitive adoption by the Bundestag (cf. BVerfGE 30, 272 [287]). It is just as inappropriate to terminate earlier the protected reliance as it is justified and required to extend this protection for consenting acts to international treaties beyond Bundestag adoption. To the extent that the tax-related legal consequences under the old state of the law -- assuming German income taxation to be permissible -- had arisen by the date of adoption of the Act by the Bundestag, i.e., by 13 June 1972, the statutory approval of the provisions of the Double Taxation Agreement 1971 engendering the retroactive, detrimental amendment of these legal consequences is thus incompatible with the principle of rule of law and therefore null and void; to this extent, the domestic application of the corresponding Treaty provisions by the Federal Republic of Germany is prevented by virtue of the Constitution. In all other respects, the statutory approval of the Double Taxation Agreement 1971 -- insofar as a decision is to be reached here -- is consistent with the Basic Law.

aa) Prompting an earlier termination of protection of reliance in the old state of the law is not the Federal Government's possible desire of not having to cooperate with the Swiss Confederation to adjust Art. 32(2)(a) DBA 1971 in light of the expired calendar year 1972. In particular, such a desire, had it existed, would not constitute a compelling reason of public welfare that might by exception make permissible a retroactive amendment of legal consequences (BVerfGE 30, 367 [390 f.]; BVerfGE 13, 261 [272]; supra II. 3. b) aa) and bb) [4.]). In negotiating international treaties of this variety, which, pursuant to art. 59(2), first sentence, Basic Law, require consent in the form of a Federal law, the Federal Government must from the outset take into account the customary duration of the legislative process -- which here did not take place with delay -- and structure its conduct with the other Treaty parties accordingly. If it fails to do so and the legislative process -- with respect to a retroactivity period -- can no longer be concluded in time, then it cannot impose the consequences on citizens in the sense of an interference with the protected reliance to which they are entitled.

It is just as impossible to support an earlier termination of protected reliance with the argument, in itself correct, that the legislative bodies (i.e., also the Bundestag) can only adopt or reject a consenting act to an international treaty in its entirety but cannot itself introduce textual amendments in the body of the treaty (BVerfGE 68, 1 [85 f.]): This circumstance does not alter the legal uncertainty that continues to exist until definitive adoption by the Bundestag and whether the latter will approve the draft law and thus the treaty.

bb) On the other hand, for consenting acts to international treaties, it is also basically not mandated by virtue of the Constitution that protected reliance be granted for the period following definitive adoption of the law by the Bundestag: with such laws as well, there is after this adoption generally lacking any reliance that might still deserve protection. The reasons controlling on this point, as set forth supra at II. 3. b) bb) (5), are also not changed by the circumstance peculiar to consenting laws that at the time of their proclamation in the Federal Law Gazette, the international treaty approved by the legislative bodies as a rule is -- apart from pre-treaty effects -- not yet internationally binding (1), and that, in turn, the domestic notice that the treaty has become binding -- as in the present case -- is usually only made with some delay (2).

(1) An existing uncertainty whether and when an international treaty will become binding does also not relate to its contents; this is basically fixed upon signature of that text of the draft treaty to which the Bundestag then gives its consent. This justifies tolerating this uncertainty under the Constitution.

The span of time during which the individual, prior to the treaty's becoming internationally binding, no longer enjoys protected reliance in the continued existence of the previous state of the law is also sufficiently limited. The extent to which in a given case a different situation applies due to special circumstances, such as ratification of the treaty only years after adoption of the law by the Bundestag, needs no discussion in the present context: Such special features are not present with the Double Taxation Agreement 1971 and its German Consenting Act. The span of time between adoption of the law on 14 June 1972 and ratification on 29 December 1972 amounted to roughly 6-1/2 months and was not unreasonably long.

(2) The fact that its entry into force was announced domestically later than its official date (9 February 1973 vs. 29 December 1972) is the unavoidable result of the nature of the treaty-concluding procedure with international treaties in need of ratification (cf. BVerfGE 63, 343 [354]). Since this announcement in the present case took place within a reasonable time, this does not entail any constitutional objections. In particular, such objections do not follow from the fact that the income tax assessment year 1972 had expired in the interim (cf. § 25(1) EStG 1971), such that the income tax debt of persons to be assessed with income tax for the entire year 1972 in the meantime -- up to expiration of 31 December 1972 -- had definitively arisen only to a certain amount or had definitively not arisen altogether. Of course, the subsequent detrimental amendment of the tax debt from income accruing out of the assessment period 1972 represents retroactive coverage of statutory elements leading to retroactive amendment of the original legal consequences resulting from the old Double Taxation Agreement 1931/59 (for the Complainant in the proceedings below, from Art. 6(1)): the persons now covered by Art. 4(6)(a) DBA 1971 are subsequently exposed for the assessment period 1972 to (for them, detrimental) German income taxation, insofar as this takes places under German tax laws. Nevertheless, this retroactive, detrimental amendment is constitutionally unobjectionable; the same applies to such persons whose German income tax liability -- assuming German income taxation to have been permissible -- under the originally controlling state of the law had, pursuant to § 25(2) EStG 1971 already lapsed prior to the end of the calendar year 1972 but to whom (still or initially) accrued income subject to assessed income tax between adoption of the law by the Bundestag and the end of the year, i.e., in the period between 14 June 1972 and 31 December 1972; finally, the situation is not different for income accruing to a taxpayer since adoption of the law that would have been subject under the original controlling state of the law and assuming the permissibility of German income taxation to withholding tax with discharge effect: All of these cases therefore lack the continued existence of protected reliance in the previous legal consequences since adoption of the law by the Bundestag and thus at the date of the definitive origin (or non-origin) of the tax debt determined by the original controlling state of the law.

This retroactive amendment of legal consequences is only impermissible under the principle of rule of law and thus unconstitutional and null and void to the extent that the legal consequences stemming from the original controlling state of the law had at the latest arisen on the day before the definitive adoption by the Bundestag of the Consenting Act to the Double Taxation Agreement 1971. Corresponding to the remarks made on the External Tax Act supra at II. 3. b) and II. 4. b), this is only the case insofar as German income taxation is now possible for income accruing between 1 January 1972 and 13 June 1972 to such persons who, under the original controlling state of the law (assuming German income taxation to have been permissible), either were only subject during this period to restricted income tax liability of § 1(2) EStG 1971 and for whom this liability came to an end without substitution prior to 14 June 1972 or who were not subject to any German income tax liability whatsoever during this period and for whom such liability would also not have arisen in the remainder of the calendar year 1972; this also applies with respect to that income accruing to the taxpayer between 1 January 1972 and 13 June 1972 that, under the original controlling state of the law (assuming German income taxation to have been permissible), would have been subject to withholding tax with discharge effect.

Judges: Zeidler, Rinck, Steinberger, Träger, Mahrenholz, Böckenförde, Klein

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This page last updated Thursday, 01-Dec-2005 11:04:42 CST. Copyright 2007. All rights reserved.