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Levy on Commodities Companies

Possible government activities aimed at securing the supplies of raw materials have lately come under scrutiny. A company levy is the obvious means of choice to finance any such actions. Would a charge of this nature be compatible with fundamental rights and the fiscal constitution? This article is based on an expert assessment prepared by the author for the Federal Ministry for Economic Affairs and Climate Action (BMWK).

Author/Autor: Prof. Dr. jur. Walter Frenz, Maître en Droit Public, RWTH Aachen University, Aachen/Germany

1  Introduction

Fig. 1. LNG terminal in Wilhelmshaven. // Bild 1. LNG-Terminal in Wilhelmshaven. Photo/Foto: Uniper

Current events and developments indicate ever more urgently the necessity of securing the supply of commodities. Obvious examples are the measures to secure the energy supply such as the high-profile inauguration of the LNG terminal in Wilhelmshaven (Figure 1) (1) that ensures availability of liquefied natural gas imports. Of far greater magnitude, however, is the necessity of a reliable supply of commodities, especially for the mobility and energy transition. E-vehicles (Figure 2) run on lithium-ion batteries, so an adequate supply of lithium is required. Without it, the mobility transition cannot be realised. (2) These are only two particularly representative examples of the hunger for raw materials demanding satisfaction. The gas supply crisis starkly demonstrated that private initiative alone is not really in any position to provide these guarantees; Robert Habeck, Federal Minister for Economic Affairs and Climate Action, became especially active, visiting a number of countries to investigate the supply opportunities they could offer, and he was able to realise successfully deliveries. Going even further, Franziska Brantner, his State Secretary, proposes an economic security policy. It envisions the pooling of public and private funds that can be used for the advancement of the extraction, processing and recycling of raw materials and the support of investments in foreign commodity projects. (3) A state-owned commodities fund and a state-owned commodities company that is also active abroad are under consideration in this respect.

Fig. 2. E-cars require lithium-ion batteries. Bild 2. E-Auto benötigen Lithium-Ionen-Batterien. Photo/Foto: © andreas160578, Pixabay

The issue of financing state commodity activities of this nature has an obvious answer: require the companies that process commodities, especially those that are in short supply, to pay for the services. This type of levy on companies could be measured according to the extent to which they consume raw materials that are so difficult to obtain on the world market that the state has to come to their rescue. If only national companies are aided in that their activities abroad are supported or their supply of commodities from abroad is guaranteed, there is also an obvious impairment of the EU’s fundamental freedoms, since even slight financial burdens such as higher transport costs – as a result of an uncompensated toll – can lead to such an impairment. (4) In this case, national companies are relieved of high costs in the extraction or procurement of raw materials that companies from other EU states must bear themselves, resulting in higher costs in the delivery of goods or the manufacture of products made from them. This alone establishes a Union law context (5) that can also be groundbreaking for the applicability of fundamental rights.

2  Fundamental rights

2.1  Basic concept

EU fundamental rights are triggered whenever a fundamental freedom is interpreted or even only touched by Union law with an impact on the Union framework. (6) National fundamental rights apply solely if this is not the case. Still, both tend equally to be subject to restrictions whenever there is a question of impairments of fundamental economic rights; such impairments, however, must first exist.

2.2  Freedom of ownership

The freedom of ownership is generally not impaired by tax obligations such as those embodied in entrepreneurial contributions to a state-owned commodities company or a commodities fund; at most, the general freedom of action (7) might be limited, but the grounds for justifying the obligation are broad. Freedom of ownership protects solely from threats to ongoing operations from such levies. (8)

2.3  Freedom of occupation

The scope of protection found in the freedom of occupation is broad indeed, but does not protect against changes in the external circumstances of business practice and does not guarantee any entitlements for market participants “that the conditions of competition remain the same for them. In particular, the fundamental right does not guarantee an entitlement to successful market participation or future earning opportunities.” This was the reasoning of the Federal Constitutional Court (BVerfG) in its decision confirming the eco-tax. (9) The same thought applies to any other charges that might be levied.

The BVerfG has also determined that freedom of occupation does not protect from commercial activity by the public sector – in the form of a state-owned enterprise, for instance – unless it is a case of crowding out or depletion competition that makes private commercial activity impossible. (10) The state-owned commodities company, however, wants to support other companies, not displace them. Nevertheless, a (de facto) monopoly position would be problematic. (11) Moreover, more detailed opinions note that state commercial activity must not be allowed to restrict entrepreneurial freedom of action. (12) This is also not the case if the state-owned commodities company wants to help other companies and support them rather than restrict the scope of their actions. The public sector would only participate in market activities without disrupting them so that freedom of occupation would not be affected; that, at least, is the prevailing analysis. (13)

2.4  Security of supply as justification

Fig. 3. European Court of Justice in Luxembourg. // Bild 3. Europäischer Gerichtshof in Luxemburg. Photo/Foto: © nmann77, stock.adobe.com

Particularly at the Union level, impairments of fundamental economic rights have been viewed as broadly justified. The European Court of Justice (ECJ) has granted both European lawmakers and member states a wide margin of assessment in regulating commercial situations (Figure 3). (14) In the banana decision, for instance, the ECJ limited its review to the issue of whether the measure in question was manifestly inappropriate for the attainment of the pursued objective and whether, in the event of uncertainty as to its future effects, it appeared manifestly erroneous in the light of the knowledge possessed by the Community legislature at the time of its adoption. (15) This sentence also shows the thought of a flexible margin in the prognosis for future-related facts.

Based on the standard applied in the banana decision, the ECJ reviewed actions restricting fundamental rights solely for manifest error. Its key points were that the restrictions indeed promote the purpose of serving the common good and do not affect the essence of the guaranteed rights. Proportionality is interwoven into this last thought. The restrictions must “not, when viewed in the setting of the pursued purpose, constitute a disproportionate, intolerable interference that adversely affects the essential nature of the guaranteed rights.” (16)

Following this argumentation leads to the conclusion that fundamental rights would not be infringed by state activities in commodities, even if free entrepreneurial activities were restricted, since the supply of raw materials plays a decisive role for the common good. This approach would also pass more restrictive reviews of the justification of impairments of fundamental rights at EU level such as those found in the Schecke & Eifert decisions (17) and, more recently, specifically on freedom of enterprise and the ban on headscarves in the workplace (18), but which were not (generally) related to fundamental economic rights.

2.5  Interim conclusion

Insofar as fundamental rights are affected at all, a justification of state commodities companies financed by company contributions can be affirmed, provided that these contributions do not have an impact that would threaten the existence of the company. Indeed, the aim is to support and strengthen the ability of companies to continue operation.

3  Requirements for special levies

3.1  Issues

Time and again, special levies prove to be difficult. Compulsory payment obligations for a commodities enterprise or commodities fund may also find themselves in these “straits”. According to the BVerfG, special levies are permissible solely as a “rare exception” (19) and, because of the limiting and protective function of the fiscal constitution in accordance with Article 104a et seqq. of the Basic Law (Grundgesetz; GG) and the necessity to maintain the equality of burdens on those subject to the levy in accordance with Article 3(1) GG, require a special justification that goes beyond the purpose of raising revenue. (20) In contrast, fees that are levied as monetary payments under public law in conjunction with a specifically attributable public service that are intended to cover the costs of the service, in whole or in part, are justified per se because of their compensatory function. (21) Cost recovery, benefit sharing, behavioural steering and social objectives are sufficient as justifying grounds, but that does not mean that all of these purposes can be used arbitrarily. (22)

3.2  Preferability of a fee

A fee is therefore preferable. In this case, however, the commodities fund or the commodities company would have to include an individually attributable service – in the form of a raw materials supply tailored to a certain company, for instance. The possibility of such a utilisation is sufficient justification for a contribution. (23) The classification as a special levy depends on the details of its structure. It can also take the form of an allocation that bypasses the state. One example is the EEG surcharge (24) levied until 30th June 2022, which was consumption-based and levied directly by the energy suppliers, so it did not constitute a special levy.

3.3  Repeatedly problematic requirements, especially in the absence of a steering purpose

In all other respects, the requirements for special levies must be observed. In view of the limitations on types of taxes of Articles 105 and 106 GG and the prohibition of parallel levies for state financing, the requirements are all the stricter the more the special levies have solely a financing and no steering function. If such a steering function reinforces a factual statutory duty, the BVerfG waives the requirement of a use of the levied funds to the benefit of a group. (25) Otherwise, this is an essential element for the admissibility of a special levy. The commodities fund must then use the money specifically for the concerns of the companies that are required to finance it. The same applies to a state-owned enterprise financed by a special levy.

3.4  Necessity of a homogeneous group

The undertakings subject to the levy must have a special material and related financing responsibility for the promoted purpose. This would arise here from the demand for raw materials. The difficulty arises in defining the subjects of the levy as a homogeneous group, so there must be a comparison with the collection of other company-related levies. Under no circumstances, in contrast to the case of the “coal penny”, may a general public of electricity or (in this case) commodities consumers become subject to the levy. (26) Criteria defining a homogeneous group must be determined. Households consuming raw materials do not constitute such a group and cannot be included. (27)

3.5  Current issues: fiscal constitution in flux

Currently under discussion are fuel emission trading certificates, which are problematised under fiscal constitutional law as a disgorgement levy and as such are classified as inadmissible (28), while emission trading certificates with the same qualification as a disgorgement levy have been approved by the BVerfG. (29) Along with the purpose of cost recovery, non-tax levies also legitimise purposes of benefit equalisation, behavioural steering and social objectives (30) so that an open concept can be affirmed. (31) This means that special levies can be used to a large extent as cost recovery measures just as for behavioural steering (in this case, less dependence on critical raw materials from a few countries) and for social purposes (affordability of goods despite increases in raw material prices such as currently for natural gas).

A definition at Union level would shift the boundaries and increase the chances of admissibility through the primacy of Union law. Its efficient realisation would require a lowering of the limits of the fiscal constitution. (32) Finally, taxes on commodity-intensive goods could be considered, but, like the admissibility of CO2 taxes, they face obstacles under fiscal constitutional law. (33)

4  Conclusion

Monetary payment obligations of companies to finance state activities do not per se constitute an infringement on fundamental rights unless they jeopardise a company’s existence, but they must be compatible with the requirements of the fiscal constitution. They are much more likely to be deemed compatible in the form of fees rather than of special levies, which have repeatedly led to constitutional challenges, some of which have been successful. It depends on the chosen structure in each specific case. However, an all-Union legal requirement can lead to a situation in which such monetary performance obligations can also be determined more easily at the national level.

References / Quellenverzeichnis

References / Quellenverzeichnis

(1) Tagesschau v. 17.12.2022: LNG-Eröffnung in Wilhelmshaven, ein wichtiger Beitrag für die Sicherheit. Online abrufbar unter https://www.tagesschau.de/inland/innenpolitik/lng-terminals-eroeffnung-wilhelmshaven-101.html (Abruf: 16.10.2023).

(2) Näher Frenz, W.: DVBl 2022, 561 ff.

(3) Brantner, F.: F.A.Z. v. 17.10.2022, Ein Gesetz für die Rohstoffsicherheit. Online abrufbar unter https://www.faz.net/aktuell/wirtschaft/lehren-aus-der-gaskrise-gesetz-fuer-die-rohstoffsicherheit-18391005.html (Abruf: 16.10.2023) auch für das Folgende.

(4) EuGH: C-591/17 v. 18.06.2019.

(5) Ausführlich dazu Frenz, W.: WRP 2023, S. 273 ff.

(6) EuGH: C-709/20 (Rn. 57 ff.) v. 15.07.2021.

(7) BVerfG: 1 BvL 19/90 v. 12.10.1994; BVerfG: 2 BvL 37/91 (BVerfGE 93, 121, 137 f.) v. 22.06.1995.

(8) BVerfG: 2 BvL 12/88, 2 BvL 13/88, 2 BvR 1436/87 (BVerfGE 82, 159, 190) v. 31.05.1990.

(9) BVerfG: 1 BvR 1748/99, 1 BvR 905/00 v. 20.04.2004.

(10) S. BVerwG: 1 B 211.94 v. 21.03.1995; VG Stuttgart: 7 K 7009/17 v. 08.07.2020.

(11) S. Frenz, W.: Öffentliches Recht, 9. Aufl. 2022, Rn. 1197.

(12) Helm, T.; Bischoff, C.: EWS 2022, 61 (65).

(13) S. Wieland, J.: VVDStRL 60 (2000), S. 605; Jarass, Hans D.: DÖV 2002, 489, 491 unter Verweis u. a. auf BVerfG: 1 BvR 35/82, 1 BvR 356/82, 1 BvR 794/82 v. 01.10.1984.

(14) Etwa EuGH: C-113/88 (Rn. 20) v. 27.06.1989; EuGH: C-127/07 v. 16.12.2008.

(15) S. EuGH: C-280/93 (Rn. 90) v. 05.10.1994.

(16) EuGH: C-280/93 (Rn. 78) v. 05.10.1994; auch etwa EuGH: C-292/97 (Rn. 45) v. 13.04.2000.

(17) EuGH: C-92/09 v. 09.11.2010.

(18) EuGH: C-804/18, C-341/19 v. 17.07.2021 mit Anm. Frenz, W.: DVBl 2022, 231 ff.

(19) BVerfG: 2 BvF 3/77 (BVerfGE 55, 274, 308) v. 10.12.1980 st. Rspr., etwa auch BVerfG: 2 BvR 1387/04 (BVerfGE 124, 348, 365 f.) v. 24.11.2009.

(20) BVerfG: 2 BvR 852/07 (BVerfGE 124, 235, 244) v. 16.09.2009; BVerfG: 2 BvL 51/06, 2 BvL 52/06 (BVerfGE 132, 334, 349) v. 06.11.2012 st. Rspr.

(21) BVerfG: 2 BvL 1/99 u. a. (BVerfGE 108, 186, 216) v. 17.07.2003; BVerfG: 2 BvL 51/06, 2 BvL 52/06 (BVerfGE 132, 334, 349) v. 06.11.2012.

(22) BVerfG: 2 BvL 9/98 u. a. (BVerfGE 108, 1, 18) v. 19.03.2003; BVerfG: 2 BvL 51/06, 2 BvL 52/06 (BVerfGE 132, 334, 349 ff.) v. 06.11.2012 mit näheren Anforderungen.

(23) Etwa Seiler, C. In: Dürig, G.; Herzog, R.; Scholz, R. (Hrsg.): GG, Stand: 01/2022, Art. 105 Rn. 82.

(24) Die daher nicht am Beihilfenverbot zu messen war, EuGH: C-379/98 v. 13.03.2001; EuGH: C-405/16 P v. 28.03.2019; näher Frenz, W.: EuR 2019, 400 ff.

(25) BVerfG: 1 BvL 56/78, 1 BvL 57/78, 1 BvL 58/78 (BVerfGE 57, 139, 167 ff.) v. 26.05.1981; Seiler, C. In: Dürig, G.; Herzog, R.; Scholz, R.: GG, Stand 01/2022, Art. 105 Rn. 84.

(26) S. BVerfG: 2 BvR 633/86 v. 11.10.1994.

(27) S. BVerfG: 2 BvR 633/86 (BVerfGE 91, 186, 205) v. 11.10.1994.

(28) Etwa Wernsmann, R.; Bering, S.: NVwZ 2020, 497 (503 f.) m. w. N. in Fn. 18; für Verfassungskonformität näher Frenz, W. In: ders. (Hrsg.): Gesamtkommentar Klimaschutzrecht, 2. Aufl. 2022, § 10 BEHG Rn. 31 ff., 45.

(29) BVerfG: 1 BvR 2864/13 (Rn. 30 f.) v. 05.03.2018; für Verfassungskonformität bereits Frenz, W.: Emissionshandelsrecht, 3. Aufl. 2012, § 8 TEHG Rn. 55 ff.; anders Burgi, M./Selmer, P.: Verfassungswidrigkeit einer entgeltlichen Zuteilung von Emissionszertifikaten, 2007, S. 51 ff.

(30) BVerfG: 1 BvR 2864/13 (Rn. 30 a. E.) v. 05.03.2018.

(31) Frenz, W. In: ders. (Hrsg.): Gesamtkommentar Klimaschutzrecht, 2. Aufl. 2022, § 10 BEHG Rn. 45.

(32) Frenz, W. In: ders. (Hrsg.): Gesamtkommentar Klimaschutzrecht, 2. Aufl. 2022, § 10 BEHG Rn. 34 ff.

(33) Dazu Frenz, W. In: ders. (Hrsg.): Gesamtkommentar Klimaschutzrecht, 2. Aufl. 2022, SteuerR B: Steuern für den Klimaschutz Rn. 7 ff. (S. 1163 ff.).

Author/Autor: Prof. Dr. jur. Walter Frenz, Maître en Droit Public, RWTH Aachen University, Aachen/Germany