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By Jabeen Bhatti
Germany’s Federal Constitutional Court ruled July 18 that a controversial financing scheme to support public broadcasters is legal.
The ruling upholds the status quo, and clarifies that the fee isn’t a tax. The plaintiffs had argued it operates like a tax, despite not having been approved by both houses of parliament as is normally required for a tax law.
“The broadcasting fee is essentially compatible with the constitution,” the judges said in their decision on four complaints, one by multinational car rental company Sixt SE and three by private citizens (1 BvR 1675/16, 1 BvR 745/17, 1 BvR 836/17, 1 BvR 981/17), according to a court statement July 18.
“The constitution does not preclude the levying of fees to a public institution, which have—potentially—a benefit to the contributor,” the statement said.
The mandatory fee applies to households, businesses and motor vehicles, regardless of whether taxpayers have a broadcast-ready device. If the court had declared the scheme unconstitutional, businesses would have seen their costs significantly reduced. Instead they must continue to pay separate contributions for every physical location and motor vehicle in their stocks, payments that can amount to millions in extra costs for larger firms each year.
The ruling said that second owners of homes wouldn’t be liable for the fee, the only change the judges mandated in the current financing scheme. They gave lawmakers until June 30, 2020 to change the law.
The government took in about $9 billion in 2016 from the fee, according to the latest data available.
The judges said businesses like Sixt would be liable for the fees on all their cars, which costs the company as much as 3.5 million euros every year in the broadcasting fees alone, including 5.83 euros per month for each of its available vehicles, according to a position paper supplied by Sixt.
Sixt had argued that the scheme was possibly unconstitutional, given that businesses have to pay in multiple locations and for multiple devices, despite the fact that employees and customers already pay to use the service themselves.
But the court countered that the broadcasting service gave business an advantage.
“The possibility of receiving radio gives the business owners an advantage: They may obtain information and use the broadcasting service to inform or entertain their employees and their customers,” the judges wrote.
“Sixt regrets today’s decision – Unfortunately, the court did not follow our legal view that the broadcasting finance reform that entered into force in 2013 regarding permanent establishments and commercial vehicles is flawed,” said Sixt in a statement emailed to Bloomberg Law July 18.
The company said it would “carefully” analyze the reasons for the verdict. “In any case, Sixt kept its word and pushed its legal opinion through all instances to the highest German court. “
The court also noted rental car companies could benefit from offering broadcasting services.
“The collection of the broadcasting fee is constitutional, as the owner of a permanent establishment receives an advantage: He could obtain information from the broadcasting service for his company, and also use the service to inform and entertain his employees and customers. For companies who focus on the use of motor vehicles, this benefit becomes a main advantage—which can even be charged for,” said Christian Solmecke, a partner at Wilde Beuger Solmecke in Cologne.
Public broadcasters are mostly financed by registration fees levied by an independent consortium, known locally as the Beitragsservice,administered by Germany’s two largest broadcasters, ARD and ZDF, and its public radio station, Deutschlandfunk.
Previously, it was mandatory that each individual device such as a television or a computer be registered, and fees paid on them. But since 2013, the government instituted a flat-fee per household, business and motor vehicle, according to the current Broadcast Contribution Treaty (RBStV).
For households, the fee is 17.50 ($20.36) euros per month and 5.83 euros per motor vehicle. For businesses, however, fees are levied for each premises based on the number of employees in the building, and can reach up to 3,150 euros per month, according to the Beitragsservice.
Now, public broadcasters said they welcomed the decision because it finally set the record straight on the fees.
“The verdict of the Karlsruhe judges basically confirms that the broadcasting contribution is an appropriate and constitutionally compliant funding model for public service broadcasting,” said ZDF director Thomas Bellut in a statement provided to Bloomberg Law.
He also noted the judges clearly stated the fee wasn’t a tax,” saying “It is good that the fee has now been given legal clarity.”
Even so, attorneys expressed mix views on the case.
“It was a balancing decision,” Matthias Lang, an attorney with Bird & Bird in Dusseldorf, told Bloomberg Tax July 18. “The debate was over whether there was proper justification for the fees, also on second homes, and on business. The court said there was even if that ultimately means that businesses have to pay something on top.”
“If they didn’t, those costs would have to be spread out across the public,” he added.
That’s because attorneys believe the court didn’t want to tamper with the system too much out of fear that it would hurt the public broadcasters.
“Generally speaking, if every private household pays, there should be no reasons for businesses to pay again because every person listening or watching has already paid as part of their private household fee,” an attorney speaking on the condition of anonymity said in an email July 18. “I take from the judgment that the court would not want to go that far,” in dismantling the system, the attorney added.
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