WOLFHARD KOOP-AUTOMATEN GOLDENE 7 GmbH & Co. KG v. GERMANY
Inadmissible
Matti Pellonpää
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. A. 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).