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Germany: Equal Tax Treatment for Same-Sex Partnerships Required

(Sept. 3, 2010) On July 21, 2010, the German Federal Constitutional Court held that the constitutional guarantee of equality requires that the inheritance tax applicable to the survivors of same-sex partnerships must be as favorable as that applied to surviving spouses (Docket Nos. 1 BvR 611/07 & 1 BvR 2464/07,
(last visited Sept. 1, 2010)).

The complaints of discrimination lodged by two survivors of same-sex partnerships originated in 2001 and 2002, when the German tax authorities determined the tax liability of the two survivors according to the then effective Inheritance and Gift Tax Act (Erbschaftsteuer- und Schenkungssteuergesetz (re-promulgated Feb. 27, 1997), BUNDESGESETZBLATT I at 378), which granted surviving spouses substantial exemptions from the inheritance tax and also placed them in the (first) class of taxpayers to whom the lowest tax rates applied due to the closeness of their kinship with the decedent. Survivors of same-sex partnerships were not mentioned in the law; consequently the spousal exemptions did not apply to them and they fell into the (third) class of inheritance tax payers, who paid the highest rates due to the “lack of a close relationship” with the decedent. At that time, the tax rate for survivors of the first class ranged from 7% to 30% of the value of the inheritance, whereas that of survivors in the third class ranged from 17% to 50%. Since February 2001, Germany has had in force an Act on Registered Life Partnerships (BUNDESGESETZBLATT I at 266, which grants same-sex partners the same civil law protections of their relationship as are enjoyed by heterosexual married couples. The Act, however, does not deal with fiscal matters.

In the case at issue, the Court held that there was no justifiable reason to deny same-sex partners the preferential inheritance tax regime that applies to heterosexual married couples. In particular, the Court held that equal treatment in inheritance taxation does not detract from the protection of marriage and the family that is guaranteed in article 6 (1) of the Basic Law, the German Federal Constitution of 1949 (Grundgesetz für die Bundesrepublik Deutschland, May 23, BUNDESGESETZBLATT 1). Instead, the Court held that this unequal tax treatment violates the guarantee of equality of article 3 of the Basic Law.. Therefore, the Court rescinded and remanded the case. In addition, the Court ordered the courts and tax authorities to delay the processing of similar inheritance tax cases until the legislature has come up with a statutory solution to eliminate the discrimination that ensued from the statutory provisions in effect between February 2001 and December 2008.

An amendment to the Inheritance and Gift Tax Act of December 2008 grants survivors of same- sex partnerships the exemptions that are granted to surviving spouses (Erbschaftsteuerreformgesetz (Dec. 24, 2008), BUNDESGESETZBLATT I at 3018). A Reform Act submitted to Parliament in June 2010 is expected to apply the preferential first-class inheritance tax rate to survivors of same-sex partnerships (Press Release, No. 63/2010, Bundesverfassungsgericht, Ungleichbehandlung von Ehe und eingetragener Lebenspartnerschaft im Erbschaftsteuer- und Schenkungsteuergesetz verfassungswidrig (Aug. 17, 2010),