Analysis of the Federal Fiscal Court’s Attac decision

This is a translation of the German text „Analyse des Attac-Urteils“, published at 14th march 2019.

The judgment in the Attac case by the [German] Federal Fiscal Court (BFH = Bundes­finanz­hof) affects thousands of foundations (trusts) and societies. This judgment is not very helpful. It does not reflect the social developments of recent decades. At some points, the BFH’s arguments are not convincing. Some conclusions are not substantiated at all. The judges missed an opportunity to re-define the concept of political commitment and to correct former confusing statements by the BFH concerning political purposes. Instead, they fell back on judgments by the BFH and the Constitutional Court on the law of political parties from the 1960s and 1980s.

The judgment in the Attac case has two levels. On a meta level, and between the lines, it declares that political intervention is something that does not belong to benevolent activities, and is only permissible in exceptional cases. Thus the judgment has a depoliticizing and restricting effect. The judges presume that a political intervention is always associated with a political party. At a specific level, the benevolent purpose of (political) education is interpreted in a very restrictive way. This restriction does not apply to all purposes.

Central statements

  • The Federal Fiscal Court confirms that political demands may be developed in the course of pursuing the benevolent purpose of „popular education“. The court rejects a different opinion, expressed by the Federal Ministry of Finance in public, but not any longer in the appeal proceedings.
  • The Federal Fiscal Court restricts benevolent political education closely, saying that this purpose does not permit „influencing the forming of political objectives and public opinion towards their own views“. This restriction on the meta-purpose of education might also be applied to other purposes that describe activities rather than topics, such as the promotion of science and research, or assistance to young people.
  • The Federal Fiscal Court declares that purpose 24, „general promotion of a democratic polity“, is a non-specific purpose, a special form of (meta-)purpose 7, popular education.
  • The Federal Fiscal Court confirms that political demands may be made to pursue a specific benevolent purpose, such as environmental protection, equal rights of men and women, or educational policy.
  • The Federal Fiscal Court declares that there is a difference between a benevolent organization and a network of people or a movement in which the organization is embedded.

Missing statements

The Federal Fiscal Court does not address several legal questions raised in the appeal on points of the law:

  • When is the distance from a political party too small? When are political parties being promoted directly or indirectly?
  • Must the standard articles of association be adopted verbatim?
  • Interpretation of the purposes of Attac from the articles, apart from education

No pursuit of political demands with meta-purposes

„Political education takes place in intellectual openness. It does not qualify for incentives if it is employed to influence the forming of political objectives and public opinion towards [the organization’s] own views.“ (head note 3)

„The benevolent status is not impaired if suggested solutions for problem fields of daily politics are developed, as well. … However, it oversteps the area of political education enjoying tax privileges according to Sec. 52, para. 2, item 7 of the Tax Code if the attempt is made to implement results thus developed by influencing the formation of political objectives and public opinion by means of further measures.“ (marginal number 27, referring to education)

The Court follows the argumentation of the Federal Ministry of Finance, distinguishing between specific benevolent purposes and meta-purposes. The meta-purposes include the „promotion of popular education“. This and other purposes describe an activity, more than a goal or topic. The activity „education“ could also serve to pursue a purpose such as environmental protection.

Therefore the Court states that demands may be drawn up with the purpose of education, but that the benevolent educational society may not advocate the implementation of the demands. Unless they are education-policy demands. This then makes the purpose a specific purpose.

In public statements concerning the case, the Federal Ministry of Finance had even demanded that benevolent organizations not be allowed to draw up demands ‒ saying that only displaying the status quo was benevolent educational work. Drawing up alternatives was the responsibility of the political parties
The Federal Fiscal Court goes a step further here, but still sets sharp limits. Thus if a society does educational work on children’s rights (since the Act does not include the purpose „children’s rights“), it may draw up and write down demands jointly with children. If the children want to march to the town hall with these, the activists of the society must stay in the meeting room. They can only offer an impromptu workshop on the law of demonstrations and training in presenting arguments.

Science and research, perhaps also aid to young and old people ‒ and the „promotion of the democratic polity“ ‒ are presumably such restricted meta-purposes.

Democracy: Not a specific purpose

Without giving grounds, the Court claims that the statutory benevolent purpose „general promotion of the democratic polity within the territorial jurisdiction of this Act“ is not a specific purpose. If it were a specific purpose, such as environmental protection, benevolent organizations might intervene politically with demands concerning democracy. The Court follows the arguments of the Ministry that this purpose is only a special form of political education, and simply combines this purpose with the purpose of popular education:

„The concept of political education does not comprise, on the basis of Sec. 52, para. 2, items 7 and 24, of the Tax Code, an independent purpose enjoying tax privileges of influencing the formulation of political objectives.“ (marginal number 28)

At another place, this purpose is related to other purposes („taking into account the assessments arising from Sec. 52 para. 2, item 24 of the Tax Code“, marginal number 18). In its judgment on the BUND case, on the other hand, another division of the Court made it clear that purposes must be considered individually, and do not have to be weighed against one another.

That the purpose „promotion of democracy“ is simply pocketed is absurd. Tax authorities and courts constantly assume the legal fiction that the legislature incorporated those purposed into the act that it considered worthy of subsidy. If a purpose is not given in the act, the legislature deliberately chose not to include it, they imply.

In the case of „promotion of the democratic polity“, the legislature had deliberately chosen to add the purpose to the laws on benevolent activity in 1983 already, as the third purpose at that time. That happened in the course of dealing with the Flick scandal. At that time, donations to political parties were thoroughly regulated for the first time, and distinguished from benevolent donations. This purpose was added to the law so that non-parties can also engage themselves for democracy and involve themselves politically. Thirty years later, the Federal Fiscal Court ignores this.

Furthermore, the Court does not even bother to give reasons why activities of Attac are not to be allocated to specific purposes, but only states the result briefly:

„Nor does a pursuit of purposes enjoying tax privileges follow from a connection to the promotion of a democratic polity in Sec. 52, para. 2, item 24 of the Tax Code.“ (marginal number 34)

„After all, the promotion of environmental protection according to Sec. 52, para. 2, item 8 of the Tax Code does not apply to measures for the democratic supervision of railway projects, either.“ (marginal number 34)

On the other hand, it reproaches the Hessian Fiscal Court with having „interpreted the concepts ‚popular education‘ and ‚democratic polity‘ too broadly“, and „misjudged criteria that must be observed with respect to the necessary differentiation from political activities“ (marginal number 31).

Political activity for specific purposes: within limits

Since the judgment is concerned above all with the purpose „education“, and ignores the allocation of Attac activities to other, specific purposes, it only touches briefly upon political intervention for specific purposes. From political educational work

„is to be distinguished the influencing of the formulation of political objectives and of public opinion in pursuit of the purposes explicitly named in Sec. 52 para. 2 of the Tax Code.“ (marginal number 20)

„The BFH has continued to adhere to its opinion that the limits of general political activity of a corporate body enjoying tax relief are still respected if the involvement in political processes does not exceed what advocating the goals (enjoying tax relief) that are in accordance with its articles of association and their implementation requires.“ (marginal number 21, reference to the judgment in the BUND case of 2017)

However, the BFH gives numerous limitations to this clarification, and does not dispense with contradictory concepts from the past. The whole argumentation is presented the wrong way around. The reasons for the judgment begin with:

„Someone who pursues political purposes by influencing the formulation of political objectives and the shaping of public opinion does not fulfill a benevolent purpose in the meaning of Sec. 52 of the Tax Code.“ (marginal number 16)

Followed by:

„According to the consistent practice of the BFH, benefiting the general public–taking into account the assessments arising from Sec. 52 para. 2, item 24 of the Tax Code–does not cover the pursuit of political purposes. … The activity of the corporate body may not ‚be directed directly or solely to political events and the formulation of government objectives‘.“ (marginal number 18)

While benefiting the general public does include „also critical public information and discussion, in order to acquaint the public and politicians with a concern enjoying tax relief under Sec. 52 para. 2, Tax Code„. But only if in doing so „the direct influencing of the political parties and of the formulation of government objectives remains secondary to the promotion of the purpose enjoying tax relief„. „…the politics of the day [may] not be the focus of its activity, but must serve to convey its goals.

Only after these restricting statements does there follow the opening for specific purposes cited above, which was declared in the BUND ruling, among others.

With the blah-blah about „politics of the day“, and the assumption of a contradiction between political intervention and the pursuit of benevolent purposes, the BFH is mainly citing older decisions by the Court from the 1980s, that relate to an entirely different state of the Tax Code. At that time, „promotion of the public“ had not yet been specified by a list of purposes. Today, the distinction is done mainly on the basis of these (specific) purposes.

The BFH should have done away with this obsolete interpretation. The Court, like the revenue authorities, has entangled itself in terms such as „goals“, „politics of the day“, and „political purposes“. In marginal number 21, it writes about justified „goals“ of a benevolent corporate body, and of „privileged concerns“, but criticizes on the other hand the „gaining acceptance for one’s own opinion“ (marginal number 29), and in marginal number 33 „opposing views“ and „specific … demands“.

A modern phrasing would have distinguished clearly between benevolent purposes and activities in pursuit of them. The BFH could have expressed the distinction from support for political parties clearly. It could have sorted the purposes, since the legislature created some confusion here.

Not new: exclusive pursuit of the purposes

The beginning of the reasons given, with its rejection of „political purposes by influencing the formulation of government objectives and shaping public opinion„, and the many restrictions, have frightened many organizations. The mention of „influencing the formulation of government objectives and public opinion in pursuit of the purposes named explicitly in Sec. 52 para. 2 Tax Code“ only reassured them a bit, because it made clear what has already been the case for a long time:

Benevolent organizations may only pursue those purposes (including by political intervention) that are given in their articles of association. If a sports club takes a position against racism, a youth-welfare body for more direct democracy, a development-aid society against unfair taxation models, then they have to be able to justify how and why this relates to the benevolent purpose.

False assumptions about equivalence to a party instead of specifics about separation from parties

The plaintiff did in fact promote the X Party“ and ther is a „ban on political activity„, the BFH cites in marginal number 13 claims by the Federal Ministry of Finance, which the latter asserted as a party to the appeal proceedings. The Court rejected neither of these statements. It does not discuss them in its judgment.

Indeed, the Finance Ministry’s argumentation amounts to claiming that overlapping of personnel or content with individual political parties endanger the benevolent status, regardless of whether a party only adopted the positions of the benevolent organization afterwards. If all the demands of a benevolent organization are also made in full by an individal party, this makes the organization into a support organization for that party, it claims. And events organized jointly with parties are always subsidies for these parties, since this saves them expenditures, the Ministry believed.

However, the BFH did not concern itself with when in fact the „direct“ or „indirect support or promotion of political parties“ (Sec. 55 para. 1 item 1 sentence 3) begins. Instead, it practically tears down this statutory boundary, and says:

„It is not material whether such influencing takes place under the further conditions for the definition of a party in Sec. 2 para. 1 of the Political Parties Act, such as participation in elections, for example.“ (marginal number 18)

„Furthermore, it is an error of law to conclude from the ban on party-political activity (see II.1.d above) that other political activities are permissible.“ (marginal number 31)

A new argument is that recognition as benevolent by a revenue office should be equated to the decision of parliament on budget appropriations. In this context, the BFH does not consider whether and to what extent a benevolent organization actually profits from a tax advantage:

„This must be considered not only in the direct appropriation of budget funds, but also in tax relief for benevolent bodies by tax exemptions and as part of tax allowances for donations.“ (marginal number 26)

This is one of the few statements in the judgment that do not relate directly to old BFH rulings. In this context, the Court cites rulings of the Federal Constitutional Court of 1966 and 1983, which relate to the financing of political parties and the distinction between the parties and the foundation trusts associated with them. Thus the BFH assumes completely erroneously that benevolent organizations serve particular parties. For the decisions of the Federal Constitutional Court cited are based entirely upon this assumption, which is justified in the case of the foundation trusts associated with the parties.

The Court makes organizations that intervene politically into party organizations, without the slightest distinction or examination. It writes:

„For according to the rulings of the Federal Constitutional Court (BVerfG), political education and general advertising activity by the parties merge in political practice, so that it is constitutionally impermissible to appropriate funds from the budget to parties for political education (BVerfG ruling of 19 July 1966 2 BvF 1/65, BVerfGE 20, 56, Rz 146). Furthermore, awarding public funds for the promotion of political education requires independent institutions which assume this responsibility independently, on their own responsibility, and with intellectual openness (BVerfG ruling of 14 July 1986 2 BvE 5/83, BVerfGE 73, 1, Rz 107).“ (marginal number 25)

Both these decisions relate exclusively to the educational work of parties and affiliated foundations, and not at all to benevolent organizations that are independent of the parties. In this regard, the Federal Constitutional Court stated in its 1966 decision (First Ruling on Party Donations, BVerfGE 20, 56):

  • „that the political parties are above all organizations for the preparation of elections, and that their funds also serve mainly for election preparation“
  • „However, the people do not express their political will only by elections and ballots. The citizen’s right to participation in the formulation of government objectives is expressed not only by voting in elections, but also by influencing the continual process of formation of political opinions, the formation of ‚public opinion‘.“
  • „The parties take part in the formulation of government objectives by the people. But they do not have a monopoly on influencing the formulation of political objectives by the people. In addition to them, individual citizens, and especially societies, groups, and associations affect the process of formulating opinions and political objectives.“

Difference between an association and a movement

In marginal number 36 towards the end, and in head note 3, the BFH indicates a loophole for Attac and others: it distinguishes between the benevolent organization and a „network“, and says that this network can act under the same name, without its statements being imputed to the society.

„When examining whether it pursues exclusively the purposes in its articles of association that enjoy tax relief, and its actual business practice, as per Secs. 56 and 63 Tax Code, it may be necessary to differentiate between the corporate body as the ’supporting body‘ of a ’network‘ and the activities of the ’network‘ that acts under the same name.“ (head note 4)

Such a structure is typical of social movements. First, a movement without a formal structure arises. Then one or more societies join in as movement organizations, in order to provide a support infrastructure, such as a bank account for donations or an office with employees. For lack of a formal incorporation of movements, these organizations cannot be instituted officially. They are recognized by acceptance in practice and by donations, and because their work serves the movement.

The BFH shows that a division of roles is possible. The movement organization does not have to make demands publicly or call for a demonstration. So such a hybrid structure can protect the benevolent status of the movement organization.

Thus, on the one hand, the BFH returns to the ban on demands by organizations with meta-purposes: they may draft demands, but not circulate them. Others can take care of that. The political parties are masters of this division of roles: a foundation trust associated with a party–with benevolent status for popular education–prepares a study on a topic. The associated party takes the study and introduces demands on the matter into the political process. Or the foundation trust associated with the party offers a training course on rhetoric, and the associated party sends its members and office-holders.

On the other hand, the BFH pushes its false assumption of equivalence of politically active organizations to a parties to an absurd level here. For, in contrast to political parties, such political players without benevolent status would not be subject to any special laws, but would be completely free in their activity. Yet they could benefit from preliminary work recognized as benevolent.

Political conclusions

It is now really up to the Bundestag (German federal parliament) to clarify the legal situation. The BFH has put the question of further specific purposes clearly in the Bundestag’s court. Perhaps its refusal to do away with conventional concepts such as „politics of the day“, and its reference to laws on political parties also meant as a submission to the legislature to do the job itself.

It is the responsibility of the Bundestag to recognize the important role of organizations of civil society for debates in society and also parliamentary decision, and to prevent a de-politicization of benevolent organizations. The Bundestag must prevent non-parties being pushed off into an unregulated area.