DECISION
AS TO THE ADMISSIBILITY OF
Application no. 38070/97
by Wolfhard KOOP-AUTOMATEN GOLDENE 7 GmbH & Co. KG
against Germany
The European Court of Human Rights (Fourth Section) sitting on 30 March 1999 as a Chamber composed of
MrM. Pellonpää, President,
MrA. Pastor Ridruejo,
MrL. Caflisch,
MrJ. Makarczyk,
MrV. Butkevych,
MrJ. Hedigan,
MrsS. Botoucharova, Judges,
withMrV. Berger, Section Registrar;
Having regard to Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms;
Having regard to the application introduced on 22 September 1997 by Wolfhard KOOP-AUTOMATEN GOLDENE 7 GmbH & Co. KG against Germany and registered on 7 October 1997 under file no. 38070/97;
Having regard to the report provided for in Rule 49 of the Rules of Court;
Having deliberated;
Decides as follows:
THE FACTS
The applicant company is a limited liability company under German law with its registered office in Lübeck. It has for its object the installation and operation of gambling machines in restaurants in Eutin.
It is represented before the Court by Mr H. Schiedermair, a public law professor at Cologne University.
The facts of the case, as submitted by the applicant company, may be summarised as follows.
A.Particular circumstances of the case
In May 1989 the applicant company filed a declaration in respect of entertainment tax (Vergnügungssteuer) for the month of May 1989 regarding two gambling machines installed and operated in the area of the Eutin Municipality and estimated the tax due at 400 German marks (DM), on the basis of a prescribed global tax rate of DM 200 per month and per machine, irrespective of the effective returns generated by that machine. At the same time, it lodged an administrative appeal against the tax assessment to the extent that it exceeded DM 100, i. e. DM 50 for each machine. The Eutin Municipality dismissed the appeal.
Thereupon the applicant company instituted proceedings with the Schleswig Holstein Administrative Court (Verwaltungsgericht), arguing that the Eutin Statute on entertainment tax for gambling machines (Satzung über die Erhebung einer Vergnügungssteuer für das Halten von Spiel- und Geschicklichkeitsgeräten - “Statute on entertainment tax”) was void because it lacked a proper legal basis. The Administrative Court dismissed the action on 24 April 1990.
On 13 February 1992 the Schleswig Holstein Administrative Appeals Court (Oberverwaltungsgericht) dismissed the applicant company’s appeal.
The Administrative Appeals Court, in detailed reasoning based on the case-law of the Federal Constitutional Court (Bundesverfassungsgericht) and the Federal Administrative Court (Bundesverwaltungsgericht), found that the tax assessments were lawful. In particular the underlying Statute on entertainment tax had a sufficient legal basis in section 3(1) of the Schleswig Holstein Municipal Tax Act (Kommunalabgabengesetz), which could not be objected to from a constitutional point of view. In this respect, the court, referring to the relevant provision of the German Basic Law (Grundgesetz), considered that the Land was competent to enact legislation concerning local excise and luxury taxes (Verbrauch- und Aufwandsteuern) unless such matters were covered by federal legislation. The entertainment tax in question constituted a local luxury tax within the meaning of this provision which was not similar to any taxes regulated by federal legislation. Moreover, in the court’s view, section 3(1) of the Municipal Tax Act was sufficiently precise, even if in some cases the term “gambling machines” might necessitate interpretation. Furthermore, the fact that section 3(1) of the Municipal Tax Act only authorised levying entertainment tax with regard to gambling machines did not amount to discrimination. The court, referring to the discretionary powers of the legislator in tax matters, found no indication of arbitrariness in the impugned taxation and the related procedural matters. It found in particular that the taxation was based on the increasing number of gambling establishments in the municipalities and the problems resulting therefrom. The tax did not, therefore, merely serve the purpose of constituting a municipal source of revenue, but also that of opposing the expansion of gambling establishments.
Finally, in the court’s view, the tax rates fixed in the Eutin Statute on entertainment tax did not exceed the statutory limits. Having regard to the relevant case-law, the court observed that tax rates were only permissible to the extent that taxes were eventually financed by the users of the gambling machines, whereas, for the persons installing and operating the machines, the tax was to be regarded as no more than a transitory item. There was no indication that the rate of the entertainment tax in question was such as to leave the gambling machine business without any income. Moreover, the applicant company had failed to show that, in the specific case, the business was unprofitable on account of the tax levied. As regards the applicant company’s further arguments, the court considered inter alia that the defendant municipality was not prevented from fixing global tax rates, irrespective of the returns of individual machines and of whether they were installed and operated in a gambling establishment, in a restaurant or in a similar establishments. The exemptions for machines without any prospect of winning or for particular machines used in fairs could not be regarded as unreasonable.
On 9 September 1992 the Federal Administrative Court dismissed the applicant company’s request for leave to appeal on points of law. It found that the case raised no issue of fundamental importance and that the findings of the Administrative Appeals Court were in line with both the case-law of the Federal Constitutional Court and its own. Moreover, taking into account the global assessment of the tax in question, the latter could not be regarded as turn-over tax, and there had, therefore, been no reason to refer the case to the European Court of Justice on a question of community law concerning turnover-tax.
On 1 March 1997 the Federal Constitutional Court refused to entertain the appeal brought by the applicant company and similar appeals which had been joined to it. It found that the appeals were of no fundamental importance as the questions raised were already settled by the court’s case-law. Furthermore, they had no prospect of success. In this respect, the Constitutional Court observed that the taxes in question only indirectly affected the complainants’ freedom to exercise their profession. Articles 105 § 2a and 106 § 6 (1) of the Basic Law expressly mentioned local excise and luxury taxation. The Federal Constitutional Court confirmed that section 3(3) of the Schleswig Holstein Municipal Tax Act inter alia was sufficiently precise. The concept of “local excise and luxury taxes” had been clarified in its case-law. Moreover, section 3(3) of the Schleswig Holstein Municipal Tax Act specifically limited the municipal power of taxation to a specific entertainment tax. Furthermore, the traditional local excise and luxury taxes, such as the entertainment tax, could not be regarded as similar to a federal tax. The prohibition on levying similar taxes found in federal legislation (Article 105 § 2a of the Basic Law) did not, therefore, apply here. The Constitutional Court further considered that the Eutin Municipality had not exceeded its powers by emphasizing the regulatory aspect of the entertainment tax rather than its function as a source of municipal revenue. The lower courts had correctly held that the taxation did not amount to an unreasonable burden and did not render the business concerned unprofitable. Finally, according to the Constitutional Court, the Federal Administrative Court had not been obliged to refer the case to the European Court of Justice as the relevant issues were settled in the latter’s case-law.
B.Relevant domestic law
Article 105 of the German Basic Law regulates legislative competences in tax matters. Article 105 §§ 1 and 2 concern the exclusive and concurrent competences of the Federation. Paragraph 2a provides that the Länder shall have legislative competence in respect of local excise and luxury taxes as long and in so far as they are not identical with taxes imposed by federal legislation. Article 106, which concerns the apportionment of tax revenues, stipulates inter alia, in its paragraph 6, first sentence, that revenue from local excise and luxury taxes shall accrue to the municipalities.
According to section 3(1) of the Schleswig Holstein Municipal Tax Act, as amended, municipalities are authorised to levy an entertainment tax on gambling machines unless such machines are installed in places subjected to the casino tax (Spielbankabgabe).
COMPLAINT
The applicant company complains that the levying of entertainment tax on gambling machines, as provided for under the Eutin Statute on entertainment tax, amounts to a violation of its right to property under Article 1 of Protocol No. 1. The applicant company submits that section 3(3) of the Schleswig Holstein Municipal Tax Act is imprecise and does not provide a legal basis for levying such a tax.
THE LAW
The applicant company complains that the Eutin entertainment tax on gambling machines is in breach of Article 1 of Protocol No. 1.
This provision reads as follows:
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”
In the present case, the applicant company was liable to pay entertainment tax on gambling machines under the Eutin Statute in respect of two machines installed and operated in the area of the Eutin Municipality. The Court notes that the German courts regard the local entertainment tax on gambling machines as a type of luxury tax eventually to be financed by the user of the gambling machines, whereas, for the persons installing and operating the machines, the tax shall be no more than a transitory item. Nevertheless, the tax was collected from the applicant company as the operator of the gambling machines. This amounted to an interference with the applicant company’s right to the peaceful enjoyment of its possessions within the meaning of Article 1 of Protocol No. 1.
Article 1 of Protocol No. 1 guarantees in substance the right of property. It comprises three distinct rules. The first, which is found in the first sentence of the first paragraph and is general in nature, expresses the principle of the peaceful enjoyment of property. The second, contained in the second sentence of the same paragraph, covers deprivation of possessions and subjects it to certain conditions. The third rule, laid down in the second paragraph, recognises that the Contracting States are entitled to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.
However, the three rules are not "distinct" in the sense of being unconnected: the second and third rules are concerned with particular instances of interference with the right to peaceful enjoyment of property and should therefore be construed in the light of the general principle enunciated in the first rule (see the Gasus Dosier- und Fördertechnik GmbH v. the
Netherlands judgment of 23 February 1995, Series A no. 306-B, pp. 46-47, § 55).
The Court considers that in this case the interference complained of is the imposition of a local tax by the Eutin Municipality. The applicant company’s complaint must therefore be examined under the heading “securing the payment of taxes”, i.e. the rule contained in the second paragraph of Article 1. That paragraph explicitly reserves the right of Contracting States to enact such laws as they may deem necessary to secure the payment of taxes. In the Gasus Dosier- und Fördertechnik GmbH judgment (p. 48, § 59), the Court stated that “the importance which the drafters of the Convention attached to this aspect of the second paragraph of Article 1 may be gauged from the fact that at a stage when the proposed text did not contain such explicit reference to taxes, it was already understood to reserve the States' power to pass whatever fiscal laws they considered desirable, provided always that measures in this field did not amount to arbitrary confiscation (see Sir David Maxwell-Fyfe, Rapporteur of the Committee on Legal and Administrative Questions, Second Session of the Consultative Assembly, Sixteenth Sitting (25 August 1950), Collected Edition of the Travaux préparatoires, vol. VI, p. 140, commenting on the text of the proposed Article 10A, ibid., p. 68)”.
As regards compliance with the conditions laid down in the second paragraph, the question arises of whether the right of States to enact such laws as they deem necessary for the purpose of "securing the payment of taxes", as the wording of the provision may suggest, is limited to procedural tax legislation (that is, laws which regulate the implementation of taxation, including the enforcement of tax debts) or whether it also covers substance (that is, the enactment of laws which determine the circumstances under which tax is due and the amounts payable). Bearing in mind the travaux préparatoires mentioned above, the Court proceeds on the basis that that right also covers substantive matters.
The applicant company mainly contests the lawfulness of the levying of entertainment tax on gambling machines under the Eutin Statute on entertainment tax.
The Court recalls that the phrase “subject to the conditions provided for by law” requires in the first place the existence of and compliance with adequately accessible and sufficiently precise domestic legal provisions (see the Lithgow and Others v. the United Kingdom judgment of 8 July 1986, Series A no. 102, p. 47, § 110). The Court’s power to review compliance with domestic law is limited (see, inter alia, the Fredin v. Sweden (no. 1) judgment of 18 February 1991, Series A no. 192, p. 16, § 50; with reference to the Håkansson and Sturesson judgment v. Sweden of 21 February 1990, Series A no. 171, p. 16, § 47).
In the present case, the arguments advanced by the applicant company do not show that the levying of the local entertainment tax was contrary to German law.
Moreover, with respect to foreseeability, the Court notes that section 3(3), first sentence, of the Schleswig Holstein Municipal Tax Act authorises Schleswig Holstein municipalities to levy an entertainment tax on gambling machines unless such machines are installed in places covered by the casino tax. It is true that this provision does not give further particulars as to the conditions for levying the entertainment tax, in particular as far as tax rates are concerned. However, the imposition of local excise and luxury taxes is expressly mentioned in Articles 105 and 106 of the German Basic Law. Furthermore, as stated by the Schleswig Holstein Administrative Appeals Court, whose findings were confirmed by the Federal Administrative Court, section 3(3) of the Schleswig Holstein Municipal Tax Act was sufficiently precise, even if in some cases the term “gambling machines” might require interpretation. The Federal Constitutional Court supported this conclusion, considering that its case-law had clarified the notion of “local excise and luxury taxes” and that section 3(3) of the Schleswig Holstein Municipal Tax Act had limited the municipal power of taxation to a very specific entertainment tax.
The Court recalls that many laws are inevitably couched in terms which are more or less vague and whose interpretation and application will be settled by practice. Attaining absolute precision in the framing of laws is impossible (see the Sunday Times v. the United Kingdom judgment (no. 1) of 26 April 1979, Series A no. 30, p. 31, § 49). Such considerations are especially important in the sphere of taxation.
Given these circumstances and the review conducted by the domestic courts, the Court finds that section 3(3), first sentence, of the Schleswig Holstein Municipal Tax Act did describe the scope of the discretion conferred on the municipal authorities with sufficient precision, having regard to the subject-matter, to meet the requirements of the Convention.
Furthermore, interferences, including those resulting from measures intended to secure the payment of taxes, must strike a “fair balance” between the general interest of the community and the need to protect the individual’s fundamental rights. The necessity to achieve this balance is reflected in the structure of Article 1 as a whole, including the second paragraph: there must therefore be a reasonable relationship of proportionality between the means employed and the aims pursued (see the aforementioned Gasus Dosier- und Fördertechnik GmbH judgment, p. 49, § 62; and the National & Provincial Building Society, the Leeds Permanent Building Society and the Yorkshire Building Society v. the United Kingdom judgment of 23 October 1997, Reports of Judgments and Decisions 1997-VII, pp. 2353-2354, § 80). When determining whether this balance has been struck, a Contracting State, not least when framing and implementing policies in the area of taxation, enjoys a wide margin of appreciation and the Court will respect the legislature’s assessment in such matters unless it is devoid of reasonable foundation (see the Gasus Dosier- und Fördertechnik GmbH judgment cited above, pp. 48–49, § 60).
The purpose of the Eutin Statute on entertainment tax was to secure revenue to the Eutin Municipality and, as indicated in the course of the administrative court proceedings, to regulate the operation of gambling machines in the local area. These aims are in the general interest. Moreover, the applicant company did not show that it had to bear an excessive burden as a consequence of the taxation at issue. In this respect, the Court observes that the applicant company abandoned, already at the domestic level, the argument that its business was no longer profitable as a result of the taxation.
Having thus examined the applicant company’s submissions, the Court finds that there is no appearance of a breach of Article 1 of Protocol No. 1.
It follows that the application is manifestly ill-founded within the meaning of Article 35 § 3 of the Convention.
For these reasons, the Court, unanimously,
DECLARES THE APPLICATION INADMISSIBLE.
Vincent BergerMatti Pellonpää
RegistrarPresident
Full & Egal Universal Law Academy