Shifting in the Legal Context
The term shifting in law refers to the transfer of costs, burdens, taxes, fees, or other economic obligations from one person or party to another. This economic-legal phenomenon plays a significant role, especially in tax law, duties law, civil law, contract law, as well as in competition law and commercial law contexts. The legal analysis of shifting examines both its permissibility under law and contract, as well as the actual and intended economic effects on the respective contracting party and third parties.
Explanation of the Term and Distinctions
Definition of Shifting
In the legal sense, shifting describes the intentional or actual passing on of economic burdens to third parties. Legally, shifting differs from the primary obligation to bear costs under law or contract, as it involves downstream effects that only occur in the course of performance or billing.
Distinction from Similar Terms
Shifting must be distinguished from terms such as piercing the corporate veil, tax shifting, as well as the general passing on of costs, which are sometimes used synonymously but can entail different legal consequences depending on the field and context.
Legal Bases of Shifting
Statutory Regulations
- Shifting in Tax Law: In legislation, for example in the Value Added Tax Act (§ 1 UStG et seq.), shifting is inherent in the system. Companies liable for VAT generally pass this on to buyers by pricing it into their goods and services. The legislator typically takes this shifting into account when defining the purpose of the law.
- Public Charges and Fees Law: Municipal charges and fees (e.g., wastewater, garbage, or chimney sweep fees) are, as a rule, shifted by law to users or end consumers.
- Civil Law Provisions: Tenancy law and sales law contain provisions for the allocation of incidental costs to tenants and buyers. The assumption of such costs is not free of charge, provided it is stipulated by law or contract.
Contractual Permissibility
Whether shifting is contractually permissible is determined by the general provisions on content control of contracts and, in particular, the regulations on general terms and conditions (§§ 305 et seq. BGB). Clauses that constitute an unreasonable disadvantage to the contractual partner may be invalid (§ 307 BGB).
Forms of Shifting
Tax Shifting
Shifting holds primary practical significance in tax law, particularly with consumption taxes (e.g., value added tax, energy tax, tobacco tax). Here, shifting must be differentiated from what is known as tax incidence: taxpayer and tax bearer can diverge, with the economic burden ideally being fully (“100% incidence”) or partially passed on by the taxpayer to third parties, usually end customers.
Types of Tax Shifting
- Forward Shifting: Costs are passed on to subsequent market participants or end consumers (e.g., by raising prices).
- Backward Shifting: In this case, taxpayers try to offload their costs onto suppliers or employees by lowering purchase prices or wages.
Shifting of Fees and Contributions
In the sphere of levies, many costs are passed on to tenants, leaseholders, or users by way of operating-cost settlements or allocation agreements. The actual effectiveness and permissibility of the shifting depend on statute, contract, and case law. Special rules apply in the housing industry and for commercial use.
Shifting of Liability Risks
In business, liability risks are often shifted to third parties through insurance or transferred via contractual assumptions of liability. Case law reviews the reasonableness of such shifting, particularly with reference to § 242 BGB and consumer protection rules.
Limits and Legal Cases of Abuse
Abusive Contractual Clauses
Contractual clauses requiring the shifting of taxes, levies, or costs to the other party are regularly subject to judicial review. According to the content control (§ 307 BGB), such clauses are invalid if they unreasonably disadvantage the contractual partner or violate statutory prohibitions.
Abuse Limits in Tax Law
Even in tax law, shifting may be limited by abusive arrangements. Under § 42 AO (Fiscal Code), arrangements that are solely or predominantly aimed at shifting taxes or levies are legally disregarded (“abuse of legal structuring options”).
Transparency Requirement
The transparency requirement demands that the consequences of the burden are recognizable and comprehensible upon conclusion of contract. Opaque or surprising shifting rules may render the relevant GTC clause void under § 305c BGB.
Legal Consequences of Shifting
Civil Law Claims
Attempting to shift may give rise to claims for damages, for instance if the shifting breaches essential or ancillary contractual duties. In case of impermissible shifting, there is a claim for injunctive relief or repayment.
Tax Consequences
In tax law, the actual or intended shifting can be relevant for determining the taxpayer, the tax base, or the fulfillment of tax obligations.
Effects Under Competition Law
Excessive or concealed shifting of costs can constitute a violation of competition law within the meaning of the Act Against Unfair Competition (UWG), especially if consumers are misled (§ 5 UWG).
Significance in Case Law
Shifting is regularly addressed by courts, especially in rental and tax law disputes. The central issue is whether the tax shifting was permissible and transparent, and what economic effects are expected for the contracting parties and consumers.
Literature and Further Reading
- Tipke/Lang, Tax Law, current editions
- Kirchhof, Income Tax Law
- Palandt, German Civil Code, Commentary, §§ 305-310 BGB
- BFH, Judgment of 24.11.2004, XI R 44/02
Note: This article offers a comprehensive and systematic account of the term “shifting” from a legal perspective and serves as guidance for legal research in literature, case law, and legislation.
Frequently Asked Questions
What legal prerequisites must be met for effective shifting?
For effective shifting—such as in the area of public levies or for allocating costs in accordance with tenancy law—certain legal requirements must be observed. First, there usually needs to be a statutory basis that explicitly allows for the passing on or allocation, for example, § 556 BGB regarding operating costs in rental relations. If such a legal basis is lacking, shifting is generally not permissible. Formal requirements must also be complied with, such as the necessity of a contractual agreement or a proper clause in the rental agreement. Furthermore, transparency requirements must be observed: the party passing on the costs is obliged to specifically present and, if necessary, substantiate the costs allocated. Finally, shifting must not violate the principle of good faith (§ 242 BGB); it must therefore be appropriate and reasonable.
In which areas of German law does shifting play a central role?
Shifting is a central principle in various sub-areas of German law. In tenancy law, it primarily concerns the allocation of operating and modernization costs to tenants (§§ 556, 559 BGB). In public law, shifting is relevant for obligations to bear costs, such as in levy law or for fees for public services (e.g., road construction contributions or waste collection fees that landlords can pass on to tenants). In consumer protection and energy law, allocation mechanisms (e.g., EEG surcharge or CO₂ costs) play a significant role. In contract law, the principle is found in the passing on of increased costs to contracting parties through price adjustment clauses. Each area is governed by specific legal review criteria.
What rights do those affected by shifting have?
Affected parties, to whom costs or obligations are intended to be shifted, have various protective mechanisms available under current law. In tenancy law, for example, only such costs may be passed on as have been contractually agreed upon and properly itemized in the billing (§§ 556, 259 BGB). In the event of incorrect or non-transparent billing, tenants may object within statutory time limits. Moreover, costs arising from impermissible or abusive shifting may be reclaimed or payment refused by invoking the invalidity of the relevant clauses (§§ 307 et seq. BGB—review of general terms and conditions). In public law, there is often a right to apply for review or object to fee notices.
What restrictions and limits exist for shifting?
In addition to the necessary legal basis, shifting is subject to strict substantive limits. For example, in tenancy law, only the passing on of actual, ongoing operating costs is permitted; maintenance or administrative costs generally may not be allocated. Furthermore, the costs may not be unreasonably high or unforeseeable. In energy law, price regulation and specific legal provisions (such as § 315 BGB or energy industry regulations) impose further limits. Shifting also violates § 242 BGB if it leads to an unreasonable disadvantage for the contractual partner. In public law, the allocation must remain within the limits of the obligor’s capacity and reasonableness.
How is a disputed shifting judicially reviewed?
If there are disputes over the permissibility or reasonableness of shifting, review is carried out by the ordinary courts (usually civil courts, such as district courts in tenancy matters). The standard is generally the interpretation of the relevant statutory and contractual provisions. The court examines whether a sufficient legal basis exists, whether formalities were observed, and whether the shifted costs are factually and arithmetically correct. In the case of unclear clauses, the so-called ambiguity rule (§ 305c(2) BGB) applies, according to which doubts are to the detriment of the drafter of the clause, typically the landlord or provider. In the context of administrative law, review is conducted by administrative courts.
To what extent are shifting clauses in general terms and conditions legally reviewable?
Clauses for shifting costs or obligations in general terms and conditions (GTCs) are strictly reviewed under §§ 305 et seq. BGB. In particular, clauses that unreasonably disadvantage the contractual partner contrary to the principles of good faith or are drafted in a non-transparent manner (§ 307 BGB) are invalid. A blanket passing on of unspecified future costs, for example, is not permitted. Case law requires a clear, comprehensible, and concrete designation of the types of costs that may be allocated. In case of doubt, such provisions are deemed invalid and the shifting of costs is then legally excluded.
