Constitutional complaint against tobacco tax for e-cigarettes unsuccessful – Decision of the Federal Constitutional Court
On December 12, 2024, the Federal Constitutional Court (BVerfG) rejected a constitutional complaint that challenged the introduction of the tobacco tax on e-cigarettes and related vapor products (Case no.: 1 BvR 1177/22). The complainant claimed that the respective legal amendment to the Tobacco Tax Act violated several fundamental rights. The court’s decision is not only of utmost importance for affected companies and consumers but also sends a far-reaching signal for the future fiscal and regulatory treatment of so-called novel tobacco products.
Background and reason for the constitutional complaint
In 2022, the Tobacco Tax Act was amended as part of the ‘Tobacco Tax Modernization Act’ (TabStMoG) so that liquids for e-cigarettes, even if nicotine-free, are also subject to the tobacco tax. According to the legislator, the aim of the amendment was to align the tax burden with that of conventional tobacco products, particularly taking into account public health policy considerations.
A company in the industry lodged a constitutional complaint against this expansion to novel products. The complainant particularly saw its freedom to practice a profession (Art. 12(1) Basic Law), its right to property (Art. 14(1) Basic Law), and the principle of equality (Art. 3(1) Basic Law) violated. Furthermore, it was argued that the new regulation was disproportionate and infringed the principles of legitimate expectation.
Review of constitutionality by the Federal Constitutional Court
Standard of review
The Federal Constitutional Court assessed the challenged provisions against the standard of the affected fundamental rights and the constitutional prohibition of disproportionate measures. The core issue was whether the burden resulting from the tax law is constitutional and proportionate.
Assessment of fundamental rights impairments
The court clarified that interferences with the freedom to practice a profession and the right to property in the context of tax collection are generally acceptable, provided they are based on a legal basis, serve a legitimate public interest, and are proportionate. The tobacco tax on e-cigarettes was considered objectively justified, as it serves the purpose of curbing the consumption of novel vapor products and establishing tax equality among different consumer products. The tax burden is, in the court’s view, appropriate, necessary, and reasonable within the meaning of the Basic Law.
Principle of equal treatment and protection of legitimate expectations
Regarding the principle of equal treatment, the Federal Constitutional Court did not find any unreasonable unequal treatment compared to conventional tobacco products. In particular, the legislator is authorized, within its regulatory discretion, to amend regulations in light of new scientific and social findings and to further develop tax laws accordingly.
On the issue of protection of legitimate expectations, the court emphasized that business operators must always anticipate that tax regulations may change. A violation of protection of legitimate expectations was therefore not established.
Formal and substantive legality
The requirements for the formal legislative process were also met, according to the court’s review. Neither the principle of legal certainty nor the general principle of equality was violated from the perspective of the Federal Constitutional Court.
Significance of the decision for business and regulation
By rejecting the constitutional complaint, the Federal Constitutional Court has granted fiscal and regulatory policy, particularly for innovative products such as liquids for e-cigarettes, broad discretion. The decision underscores that the legislator can respond flexibly to developments in consumer and health protection and may include new product categories in the tax burden. Market participants should continue to closely monitor ongoing developments in the regulation and taxation of novel consumer products.
Significance for businesses – Tax risks and planning certainty
For companies in the tobacco and nicotine replacement products sector, the tax treatment of these goods remains a challenge. In light of the decision, it is to be expected that there may be further regulatory adjustments in the future. Their effects on the profitability and legal structuring of business models should be carefully analyzed. Forward-looking investment decisions and the strategic alignment of business activities are becoming increasingly important in view of the current case law.
Conclusion
With its decision, the Federal Constitutional Court has clarified that the introduction of the tobacco tax for liquids and related products is compatible with the Basic Law. The consideration of consumer, health, and competition interests justifies broad legislative discretion. The decision is trendsetting for the tax treatment of innovative products in the field of pleasure and addictive substances.
If, as a business, investor or private market participant, you have questions about the fiscal regulation of tobacco products or similar goods, we at MTR Legal Rechtsanwalt are available to comprehensively support you with your legal matters.
