1 Reform of tax audits as from 1 January 2025
The reform as regards tax audits was adopted with the law of 20 December 2022 amending tax procedural law (act on the implementation of the DAC7 Directive and the modernisation of tax procedural law). Many of these new rules are now, for the first time, applicable to taxes and tax refunds arising as from 1 January 2025 or for which an audit order has been issued as from 1 January 2025. The long-awaited reform aims to make tax audits faster and more efficient. For the taxable person, the new regulations will result, in particular, in extensions of the obligations to cooperate, submit records and correct errors. Adjustments to deadline monitoring and Tax Compliance Management Systems (hereinafter: TCMS) are necessary.
2 New regulations on the limitations period for assessments and on more timely audit orders
A tax audit usually suspends the statutory limitations period. To speed up the tax audit, this has been reorganised: the suspension of the limitations period must end no later than five years after the end of the calendar year in which the audit order was announced, sec. 171 para 4 sentence 3 of the German Fiscal Code (hereinafter: GFC). To date, the completion of the tax audit was decisive in this regard. In line with this new regulation, sec. 197 para. 5 sentence 1 GFC stipulates that, with regard to the tax assessment of a taxable person who has been advised by a tax consultant, a tax audit “shall” be ordered more quickly in the future, namely by the end of the calendar year following the year in which the tax assessment takes effect. However, if the tax audit covers several tax assessments, as is common practice, the most recent assessment issued is to be used to determine the maximum suspension for all audit years. If the tax authorities issue the order at a later point in time and are responsible for this delay, the five-year suspension of the statute of limitations nevertheless begins at the point in time at which the audit order should have been issued in accordance with sec. 197 para. 5 GFC.
3 Extension of the taxable person’s obligations to cooperate and to submit documentation
Another new feature is the qualified request for cooperation (sec. 200a GFC). According to this, six months after the notification of the audit order, the tax authorities can request the taxable person to cooperate within one month. For each day cooperation is delayed, the tax authorities are required to charge a fine in the amount of EUR 75. They can only refrain from doing so if the taxable person can credibly demonstrate that the delay in cooperation is excusable. In addition, the tax authorities can impose a surcharge of up to EUR 25,000 per day on economically powerful or repeatedly uncooperative taxable persons. Both are permissible for a maximum of 150 days.
The new regulations have also tightened the obligations to submit documentation: in future, transfer pricing documentation must be submitted at any time upon request and, in the event of an audit order, without request within a period of only 30 days (sec. 90 para. 4 GFC). Here, too, there is a risk of substantial surcharges for late submission.
4 Extension of the duty to report and correct
The duty to report and correct, in accordance with sec. 153 GFC, has been extended by the new paragraph 4 to cases in which audit findings have been implemented in an incontestable assessment and the underlying facts also lead to changes in the taxable amount in declarations other than those audited. This obligation, in accordance with para. 4, now also applies if the taxable person holds a different legal opinion. It is unclear whether the obligation only covers the same facts, ie ongoing matters, or also comparable facts. In the case of mutual agreements, the obligation to correct, in accordance with sec. 153 para. 4 GFC, should be kept in mind in the future. With regard to criminal tax law, it should be noted that failure to comply with the provisions of sec. 153 para. 4 GFC may result in accusations of tax evasion. Taxable persons should therefore thoroughly check whether the audit findings trigger an immediate obligation to make an amendment in accordance with sec. 153 para. 4 GFC, after they become final. This could influence the decision to pursue an appeal against the assessment notices. In addition, taxable persons should tighten up their TCMS in line with the new requirements.
5 Partial final assessment and binding rulings
In the future, a taxable person can apply for a partial final assessment if they can credibly demonstrate a significant interest in doing so, (sec. 180 para. 1a GFC). In this case, definitive parts of a tax assessment can be determined separately in the context of a tax audit. By appealing against the partial final assessment, clarification of disputed issues can be achieved more quickly in an appeal procedure. This regulation is supplemented by the new sec. 204 para. 2 GFC, which provides for the possibility of a binding ruling for future circumstances after such a partial final assessment has been issued. Taxable persons can therefore work towards obtaining legally binding clarity and security for further planning at an earlier stage through a partial final assessment and a binding commitment.
6 Agreements on the course of the audit
In order to clarify facts more quickly and to increase transparency, it is now regulated in sec. 199 para. 2 sentence 2 f GFC, that both tax authorities and taxable persons can agree on regular discussions and framework conditions for the course of the audit, for example in the form of an audit plan and deadlines for responding to questions. If the taxable person complies with these agreements, the tax authorities may not issue a qualified request for cooperation or impose a fine for delay in cooperation.
Contact:
Dr. Thomas Streit, LL.M. Eur.
Lawyer
Phone: +49 89 217501275
thomas.streit@kmlz.de
As per: 15.01.2025