Judgment of 20 January 2016 -
BVerwG 10 C 24.14ECLI:DE:BVerwG:2016:200116U10C24.14.0
Please note that the official language of proceedings brought before the Federal Administrative Court of Germany, including its decisions, is German. This translation is based on an abbreviated version of the original decision. It is provided for the reader’s convenience and information only. Please note that only the German version is authoritative. Page numbers in citations have been retained from the original and may not match the pagination in the English version of the cited text.
When citing this decision it is recommended to indicate the court, the date of the decision, the case number and the paragraph: BVerwG, Judgment of 20 January 2016 - BVerwG 10 C 24.14– para. 16.
1. The prohibition against performing commercial activities in addition to the activity as a public accountant is compatible with the law of the European Union and German constitutional law.
2. Activity in a management body of a corporation falls under the prohibition against commercial activity within the meaning of section 43a (3) no. 1 of the German Public Accountant Act (Wirtschaftsprüferordnung).
Sources of law
Charter of Fundamental Rights of the European Union (CFR) articles 15, 16, 51 Treaty on the Functioning of the European Union (TFEU) articles 45, 56 Basic Law for the Federal Republic of Germany GG Grundgesetz article 12 (1) German Public Accountant Act (WPO, Wirtschaftsprüferordnung) section 43a Agreement on the Free Movement of Persons between Switzerland and the European Union (AFMP) articles 4, 5, 7 (b)
Summary of the facts
The claimant seeks to become chairman of the administrative board of a joint-stock company under Swiss law (Aktiengesellschaft) in addition to his activity as a public accountant.
The claimant is a freelance lawyer, tax advisor and public accountant. He is admitted in Italy as a "revisore legale", in Luxembourg as a "reviseur d’entreprises" and in Switzerland as a "Revisionsexperte". His firm has offices in Germany, Italy, Luxembourg and Switzerland. In October 2013, he informed the defendant of his intention to become chairman of the administrative board of a Swiss joint-stock company. According to his statements, the company would initially merely be renting and leasing premises. In another step it was planned to operate business centres. A delegated administrative board would be tasked with the management of the company. The chairman will therefore merely be entrusted with supervisory functions the exercise of which does not contravene the Act concerning a Code of Professional Practice for German Public Accountants (WPO, Wirtschaftsprüferordnung) in the version promulgated on 5 November 1975 (Federal Law Gazette (BGBl., Bundesgesetzblatt) I p. 2803), most recently amended by article 255 of the Ordinance of 31 August 2015 (BGBl. I p. 1474), he said.
The defendant responded that it considered the intended activity to be commercial and therefore not permitted pursuant to section 43a (3) no. 1 WPO. According to applicable Swiss company law, the administrative board of a joint-stock company had to exercise both management and supervisory functions. It is true, according to the defendant, that the administrative board may delegate its management powers to individual members or third parties. However, overall management of the company, which also includes management rights and duties, was one of the things that could not be delegated. In addition, the defendant stated, the administrative board may at any time use an individual directive to intervene in the delegated management or reclaim some or all of said management for itself. Since this meant that a management function always remained with the administrative board, his activity in the corporate body shared the commercial character of the company's business activity.
In a letter dated 16 January 2014, the defendant informed the claimant that it adhered to its legal opinion. In a decision dated the same day, it rejected the defendant’s application "for the issue of an exemption pursuant to section 43a (3) no. 2 second half-sentence WPO" among others on grounds that the defendant had not demonstrated that he intended to perform the activity submitted for approval only temporarily, as required in section 43a (3) no. 2 second half-sentence WPO.
In his action, the claimant asks the court to declare that acting as chairman of the administrative board of a Swiss joint-stock company is compatible with his profession as a public accountant, but has in any event to be permitted. The Administrative Court dismissed the action. In the opinion of the Court, the activity which the claimant seeks to pursue is a commercial activity which is incompatible with the profession of public auditor pursuant to section 43a (3) no. 1 WPO. His activity in a corporate body as chairman of the administrative board had the same commercial character as the company's business activity, the Court held. For even when management is delegated to the fullest extent, residual management powers would still remain with the administrative board (article 716 (2), article 716a of the Federal Act on the Amendment of the Swiss Civil Code - Part Five: The Code of Obligations (Bundesgesetz betreffend die Ergänzung des schweizerischen Zivilgesetzbuches - Fünfter Teil: Obligationrecht) of 30 March 1911), particularly overall management and the organisation of the accounting, financial control and financial planning systems. In order to properly perform these non-transferable residual duties, he had to be given extensive access to the company's financial and economic position. This involved a significant risk of conflicts of interest between the commercial and public accountant activity.
11 The appeal on points of law is without merit. With regard to the principal application and the subsidiary declaratory application, the judgment of the Administrative Court does not contravene federal law. With regard to the subsidiary applications to compel the authority to grant permission (Hilfsverpflichtungsanträge), the judgment does contravene federal law but ultimately proves to be correct (section 137 (1), section 144 (4) of the German Code of Administrative Court Procedure (VwGO, Verwaltungsgerichtsordnung)).
12 1. The Administrative Court rightly decided that acting as chairman of the administrative board of a Swiss joint-stock company is incompatible with the profession of a public accountant.
13 a) This activity falls under the prohibition against commercial activity in section 43a (3) no. 1 WPO. Freelance activities performed on a permanent basis which are mainly characterised by the commercial pursuit of profit are deemed to be commercial within the meaning of the provision. It is irrelevant in this regard whether the public accountant acts in his or her own economic interest or that of a third party and in what legal form the activity is performed. Since the Public Accountant Act does not explain the term "commercial activity", the starting point for its interpretation must be the concept of a trade under the law governing professional matters that has the characteristics of independence, permanence and the pursuit of profit (cf. Federal Court of Justice (BGH, Bundesgerichtshof), judgment of 4 March 1996 - StbSt (R) 4/95 - Rulings of the Federal Court of Justice in Criminal Matters (BGHSt, Entscheidungen des Bundesgerichtshofs in Strafsachen) volume 42, page 55 <60 et seq.>; Federal Finance Court (BFH, Bundesfinanzhof), judgment of 17 May 2011 - VII R 47/10 - Rulings of the Federal Finance Court (BFHE, Entscheidungen des Bundesfinanzhofs) 234, 379 para. 12; (…)). This therefore also covers activities of a public accountant in a corporate body on behalf of the responsible body of a company which are characterised by the commercial activity of the latter and therefore similarly present themselves as commercial. Limiting the concept “commercial activity” to activities which are in one's own economic interest would be inconsistent with the protective purposes of the provision. On the one hand, the prohibition against commercial activity serves to protect public confidence in the accuracy of annual financial statements and the economic decisions which are based on those statements (cf. Bundestag printed paper (BT-Drs., Bundestagsdrucksache) 3/201 p. 55, BT-Drs. 12/5685 p. 27, (…)) and on the other hand it serves to protect the clients of the public accountant against the public accountant exploiting in his own economic interest or in the economic interest of a third party the knowledge which he has acquired of his client's business procedures in the course of his professional activity (…). The two protective purposes are only satisfied if the public accountant is prohibited from any commercial activity. The same applies to a commercial activity which is in the economic interest of a third party. Whether the activities of the public accountant are influenced by his own or a third party's economic interests and whether he himself or others benefit from information gained in the course of an audit is irrelevant to the general public and the clients audited by him. (…)
15 Based on the Administrative Court's findings as to the facts concerning what is contained in the Swiss Code of Obligations (section 173 VwGO in conjunction with section 293 of the German Code of Civil Procedure (ZPO, Zivilprozessordnung)) which bind the Federal Administrative Court (section 137 (2) VwGO), the activity of a chairman of the administrative board of a Swiss joint-stock company presents itself as commercial. This activity for a body of the company is characterised by the commercial nature of the business activity of the joint-stock company. According to the findings of the Administrative Court, the administrative board as a collegial body according to Swiss law is responsible not only for the supervision of the company but also as a matter of principle for the overall management activity and is consequently responsible for achieving the commercial corporate purpose. As a management body, the administrative board must therefore itself actively participate in legal relations by pursuing profit for the company. Its actions can be distinguished from the activity of an independent businessman merely by the fact that it is not pursuing its own intentions of making profit but those of a third party.
16 b) Excluding the claimant from holding the office of chairman of the administrative board of a Swiss joint-stock company is compatible with article 12 (1) of the Basic Law (GG, Grundgesetz).
17 section 43a (3) no. 1 WPO, by prohibiting someone from exercising a commercial activity as a second job in addition to practising as a public accountant, constitutes an interference with the freedom to choose an occupation (see Federal Constitutional Court (BVerfG, Bundesverfassungsgericht), decisions of 15 February 1967 - 1 BvR 569, 589/92 - Rulings of the Federal Constitutional Court (BVerfGE, Entscheidungen des Bundesverfassungsgerichts) 21, 173 <179> and of 4 November 1992 - 1 BvR 79/85 inter alia - BVerfGE 87, 287 <316>).
18 This interference is justified under constitutional law and is, in particular, proportional. Section 43a (3) no. 1 WPO serves the legitimate purposes under constitutional law of ensuring the independence of public accountants' professional practice and of protecting client data (cf. also the BVerfG, chamber decision of 21 November 1995 - 1 BvR 784/94 - (…)). Excluding commercial second jobs is also a suitable way of achieving these purposes for the reasons described relating to the provisions protective purpose. With regard to the necessity of the interference, the question is what economic consequences a professional ban causes the candidates and what expense is incurred to overcome the ban (BVerfG, decision of 4 November 1992 - 1 BvR 79/85 inter alia - BVerfGE 87, 287 <317>). Incompatibility provisions such as this one are only necessary and reasonable where the risk of a conflict of interest is clearly apparent and cannot be averted by using professional practice rules (BVerfG, decision of 4 November 1992- 1 BvR 79/85 inter alia - BVerfGE 87, 287 <330>). (...)
19 section 43a (3) no. 1 WPO, which focuses on the abstract risk of a breach of professional duties, is, according to the criteria described, necessary in order to achieve the legitimate regulatory purposes. Less stringent means are not sufficient to rule out the risk that the information acquired during the audit activity might be misused for the economic interests of a third party and to ensure public confidence in the independence of public accountants' professional practice and consequently in the results of their professional activity. The same applies where the provision covers the activity as chairman of the administrative board of a Swiss joint-stock company. With this activity, as with any other commercial activity performed by a public accountant, there is an evident risk of conflicts of interest. In the course of their activity, public accountants acquire extensive information about the financial position of the clients who are audited by them (section 2 (1) WPO), and given advice on tax (section 2 (2) WPO) and other matters (section 2 (3) no. 2 WPO). They acquire similar insights when they act as experts in the field of business management (section 2 (3) no. 1 WPO) and when acting as trustees of companies (section 2 (3) no. 3 WPO). If a public accountant were to become commercially active in his own or a third party's economic interest, he might, as a result of the scope and multiplicity of facts to be revealed to him during his activity as a public accountant, be faced at any time with the problem of having to make economic decisions for which information which he has obtained from his activity as a public accountant is relevant. The same applies to acting as chairman of the administrative board of a Swiss joint-stock company, even if the public accountant has not successfully passed the quality assurance review required under section 57a WPO and is therefore not authorised to carry out statutory audits. For even with public accountants who are not authorised to perform audits, there is the risk of conflicts of interest in relation to the information they have obtained about their clients in the course of consultancy mandates.
20 The risk of conflicts of interest cannot be effectively countered simply by professional practice rules, for instance by the creation of derogations corresponding to section 57 (4) no. 1 of the German Tax Advisory Act (StBerG, Steuerberatungsgesetz) or section 8 (3) of the Federal Regulations for German Notaries (BNotO, Bundesnotarordnung) or by regulations on the subsequent control of a commercial activity. This results in particular from the larger number of circumstances, of which the public accountant gains knowledge during his activity. The information he receives from his clients differs from the information which is customarily disclosed to other freelancers, both in terms of its breadth and its depth. Lawyers, tax advisers and notaries are customarily informed only in a targeted manner with regard to the actual specific case being handled. They generally receive only the information which the client voluntarily transmits to them. In contrast to that, public accountants must be fully informed during the audit period about the audited company and, where necessary, must have their own access to the documents. In this process they are also always faced with data which may be significant for an own commercial activity. It is not possible to create areas of commercial activity where there is typically no risk of conflicts of interest and where a general prohibition on commercial activity is not necessary to ensure that professional practice is free from conflicts of interest. For instance, financial information may also be of interest regardless of the industry involved. What is more, the public accountant might at any time take on new clients or change the subject of his commercial activity in such a way that information acquired earlier becomes more important for his commercial activity or new information triggers conflicts of interest.
21 Lastly, the public obligation to protect the basic rights of the companies audited by public accountants speaks against regulating the prevention of conflicts of interest only at a professional practice level. The public instruction to have annual financial statements audited by public accountants represents an interference with the right of the audited companies to informational self-determination, a right which can also be invoked by legal entities according to article 19 (3) in conjunction with article 2 (1) GG (cf. BVerfG, decision of 13 June 2007 - 1 BvR 1550/03 and others - BVerfGE 118, 168 <204>). This interference can be justified by the purpose of protecting confidence in the accuracy of annual financial statements only if it does not go beyond what is necessary and reasonable. Given the extensive information which the audited company has to disclose, the state must take particularly effective precautions to ensure that this information is not used to the detriment of the party that is audited. It would hardly be possible to draft a provision which attempted to solve conflicts of interest merely by means of restrictions on practising a second commercial job without any loopholes and moreover such a provision would have to rely on active professional supervision without any gaps and would only have an ex post impact, and would therefore not be as effective.
22 c) EU law does not preclude application of section 43a (3) no. 1 WPO.
23 aa) If one assumes, in favour of the claimant, that Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC (Official Journal (OJ) L 157, p. 87) is directly applicable in the given situation, this does not, either in its original or in its version amended by Directive 2014/56/EU of the European Parliament and of the Council of 16 April 2014 (OJ L 158, p. 196) which is to be transposed by 17 June 2016, preclude application of section 43a (3) no. 1 WPO. Neither in its original nor in its amended version does Directive 2006/43/EC contain rules concerning the compatibility of commercial activities with the activity as statutory auditor. It does not result from this, as is the opinion of the claimant, that Member States would be prevented from enacting such rules under their own legislative powers. Neither the original nor the amended version of Directive 2006/43/EC claims to establish exhaustive rules for the profession of public accountant (including the provisions on the compatibility of said profession with other professions).
24 Both versions of Directive 2006/43/EC, according to their wording, their systematics and the recitals, merely stipulate the requirements for statutory audits of annual accounts. They do not conclusively define either the job of a statutory auditor or that of a public accountant. Article 1 of Directive 2006/43/EC states that the Directive establishes rules concerning the statutory audit of annual accounts. In the fifth recital of the original version it is stated that the aim of the Directive is the high-level harmonisation of statutory audit requirements. It is true that both the requirements for the quality of statutory auditors (recitals 7 to 12 of the original version of Directive 2006/43/EC) and for the statutory audit itself (recitals 13 to 17 of the original version of Directive 2006/43/EC) are then described, which could suggest that the Directive wishes to also regulate the job description of the statutory auditor. To the extent, however, that the Directive in its original and amended version establishes rules concerning the professional ethics of statutory auditors (article 21 to 25 of Directive 2006/43/EC), it is limited to those professional ethics rules which are necessary to achieve the desired quality standard of statutory audits. The provisions concerning incompatible activities are accordingly connected to concrete audit procedures and to a pre- or post-audit financial or personal interest which is incompatible with those procedures (cf., for example, article 22 (2) of Directive 2006/43/EC old version, article 22 (2) and 4, article 22a of Directive 2006/43/EC new version). Any other incompatibilities which may originate in the various legal obligations required by a second job are not addressed in the Directive.
25 Member states are therefore not prevented from establishing their own rules in this respect. The first argument suggesting that the EU intended to allow them this margin is the fact that a directive was enacted rather than a regulation. The recitals in the original version of the Directive also suggest that Member States have latitude to make rules. The fifth recital states that high-level, though not full, harmonisation is the aim. More stringent requirements at the level of the Member States are expressly declared to be possible. The Directive adheres to this concept even in its amended version by stating in the first recital that its aim is to further harmonise the conditions for the approval and registration of persons that carry out statutory audits, the rules on independence, objectivity and professional ethics applying to those persons, and to increase the minimum level of convergence with respect to the auditing standards. This is confirmed by the 31st recital of Directive 2014/56/EU amending Directive 2006/43/EC, in which the European Parliament and the Council issuing the Directive, referring to the principle of subsidiarity, explain that their aim is to provide regulations only to the extent that the regulatory objective of the Directive of further enhancing the quality of the statutory audits that are performed within the Union cannot be sufficiently achieved by Member States. Article 21 (1) second sentence of Directive 2006/43/EC, both in the original and in the amended version, accordingly obligates Member States to establish professional ethics for statutory auditors, covering at least their public-interest function, their integrity and objectivity and their professional competence and due care. If, however, article 21 (1) second sentence of the said Directive only requires certain minimum principles, it automatically follows that the national legislator may establish additional ones. Finally, what is more is that the national description of the job of a public accountant and the field of activity of a statutory auditor under EU law are only identical in part. According to the rules of the German Public Accountant Act, the job of a public accountant is characterised not only by the performance of business management audits but also by advisory activity, activity as trustee and as expert for assessments in the field of business management (section 2 (3) WPO). Furthermore, not every public accountant performs statutory audits. The requirement rather is that in addition to being admitted to practice as a public accountant the account needs to have participated in the statutorily prescribed quality assurance review (section 57a WPO).
26 bb) Contrary to the view of the claimant, article 15 (1) and article 16 of the Charter of Fundamental Rights of the European Union (CFR) do not preclude application of section 43a (3) no. 1 WPO either. The basic rights stated do not apply, article 51 (1) first sentence CFR. The Charter of Fundamental Rights must be adhered to by the Member States only when they are implementing EU law. This kind of implementation must be assumed if there is a connection between a national sovereign act and EU law above and beyond the fact that the matters covered are closely related, or if one of those matters may have an indirect impact on the other (cf. ECJ, judgment of 6 March 2014 - C-206/13 [ECLI:EU:C:2014:126], Siragusa - para. 24). The issue in this respect is whether the national provision is intended to implement a provision of EU law or is pursuing objectives other than those covered by EU law and whether there are specific rules of EU law on the matter governed by the national sovereign act or capable of affecting it (cf. ECJ, ibid para. 25). There is no such connection between section 43a (3) no. 1 WPO and EU law in the present case. The regulatory scope is limited here to the provision on the minimum quality requirements of the statutory audit. This means that section 43a (3) no. 1 WPO does not transpose regulatory responsibilities under EU law, nor is there EU law which generally relates to the professional field of a public accountant.
27 cc) Finally, the claimant is not adversely impacted by section 43a (3) no. 1 WPO in his freedom to provide services or his freedom of establishment pursuant to articles 49 and 56 of the TFEU. The said provisions do not apply to the activity which the claimant intends to pursue in Switzerland. In particular, the applicability alleged by the claimant cannot be derived from the provisions in articles 4, 5, 7 (b) and 16 of the Agreement on the Free Movement of Persons between Switzerland and the European Union (AFMP) in conjunction with appendix I of the AFMP which are cited by the claimant.
28 2. The Administrative Court rightly ruled that acting as chairman of the administrative board of a Swiss joint-stock company is incompatible with the profession as a public accountant even if another person is entrusted with the management as the administrative board's authorised representative.
29 Based on the Administrative Court's findings as to the facts concerning what is contained in the Swiss Code of Obligations (section 173 VwGO in conjunction with section 293 ZPO) which bind the Federal Administrative Court (section 137 (2) VwGO), the activity as chairman of the administrative board of a Swiss joint-stock company can even then still be described as commercial activity. The activity in a corporate body which the claimant seeks to pursue is still characterised even then by the commercial nature of the business activity of Swiss joint-stock companies. According to the findings of the Administrative Court, the administrative board cannot fully and permanently delegate its entire management obligation as a collegial body under Swiss law and its obligation to promote the company's commercial purpose. It is left instead with at least overall management of the company, which includes not just supervisory rights and duties but also the right, and in some cases, the duty, to formulate strategic corporate goals and issue instructions to management to achieve those goals, or to assume some or even all of the management tasks itself. There are additionally the other non-transferable tasks such as the design of the accounting system, internal financial control system and financial planning which would still obligate the claimant, even when all latitude for delegating the management responsibilities of the administrative board is exhausted, to take an active part himself in the pursuit of profit for the company. If the activity of the chairman of the administrative board of a Swiss joint-stock company still constitutes management activity even when all delegation options are exhausted, it is commercial. No decision therefore needs to be made as to whether purely supervisory activity must also be classified as commercial because even this activity is characterised by the obligation under company law to promote the company's commercial purpose.
30 3. With regard to the subsidiary applications to oblige the authority to grant permission (Hilfsverpflichtungsanträge), the judgment of the Administrative Court does contravene federal law but its conclusion proves to be right (section 137 (1), section 144 (4) VwGO). The action is inadmissible from the outset. The requisite interest in bringing legal proceedings does not exist. The general question as to whether activity as chairman of the administrative board of a Swiss joint-stock company is compatible with the profession of public accountant already had to be clarified in the action for a declaratory judgment filed primarily by the claimant. If, as stated, a public accountant is rightly generally prohibited from becoming chairman of the administrative board of a Swiss joint-stock company, there can be no question of granting the general permission that is sought for said activity. The claimant originally intended to obtain a mandate for the administrative board. When this did not occur he finally no longer submitted a concrete activity as member of the administrative board for review. (...)