Tax & Legal

It started as a regional “task force” and now has developed into a nationwide search for influencers suspected of tax evasion. Special units of the tax authorities are now using state-of-the-art analysis tools throughout Germany combining artificial intelligence with traditional covert investigation methods and focusing specifically on social media income.

The Federal Ministry of Finance (MoF) has revised its guidelines regarding the exchange of information and the associated external audit titled “instruction sheet on cross-border audit cooperation with tax administrations of other countries and territories: joint and simultaneous audits and presence of officials”.

The Federal Ministry of Finance (MoF) has updated its information on the taxpayer's main rights and obligations to cooperate during the external tax audit.

The competence of the Federal Central Tax Office is for both full assessment of German income tax of limited taxpayers as well as monitoring and carrying out the withholding tax procedure in accordance with Section 50a (1) Income Tax Act. In a most recently published case, though, the Supreme Tax Court held that it is not permissible for the Central Tax Office to conduct general external tax audits. This is solely the responsibly of the local tax offices.

The Tax Court of the State of Hesse has dismissed an action brought by two sons who, as heirs, did not continue the business of their deceased father. A tax audit was announced for several prior years. The heirs objected in an appeal before the tax court. To no avail. In fact, they must tolerate and comply with the tax audit, the tax court says in a 2023 decision published in January 2024.

Similar to a VAT inspection pursuant to Section 27b of the German VAT Act, the review of the cash-system (here: at a restaurant business) does not require prior notice or the specification of reasons. This was decided by the Hamburg Tax Court. In addition, the court held that the cash inspection allows an automatic follow-up tax audit if warranted by the facts determined during the cash inspection.

On 10 November 2022 the Bundestag approved the bill submitted by the Federal Government to implement Council Directive (EU) 2021/514 of 22 March 2021 amending Directive 2011/16/EU on administrative cooperation in the field of taxation and modernising tax procedural law (20/3436, 20/4228).

We have been noticing an increased number of notifications to the Federal Central Tax Office during tax audits for the failure by German subsidiaries and permanent establishments to declare and pay over German Insurance Premium tax on premiums paid by a foreign group entity to an insurer domiciled outside the EU or EEA. This can prove very costly.

In light of global trading of multinational corporations the tax offices are in constant pursuit of stronger international tax compliance. The German Federal Finance Ministry has now issued guidelines on coordinated external tax audits with foreign tax administrations.

The finance ministry has accepted as a precedent a Supreme Tax Court ruling allowing “large” businesses subject to regular tax audit to provide with tax effect for the costs to be incurred in assisting the tax auditors.

The Supreme Tax Court has held that a large company is entitled to provide with tax effect for the costs of supporting a future tax audit in respect of all years ended on balance sheet date.