Administrative appeal proceedings in tax law: The appeal – procedure, deadlines, chances, and risks
A tax assessment can have significant economic consequences. If a tax assessment is issued containing unfavourable findings or results in additional tax liabilities, it should be reviewed promptly in order to determine whether an appeal should be filed. Once the appeal period has expired, the assessment generally becomes final and binding and can usually only be amended under limited circumstances. The same applies to other appealable decisions of the tax authorities. In the field of VAT, an appeal may also be filed against VAT advance returns and annual VAT returns. Pursuant to sec. 168 of the German Fiscal Code (AO), these are equivalent to a tax assessment subject to review.
The appeal is the principal extrajudicial remedy which is available to challenge tax assessments (secs. 347 et seq. AO). Appeal proceedings constitute a tax procedural remedy and allow for a comprehensive review of the decision by the tax authorities. As a rule, appeal proceedings are also a prerequisite for bringing an action before the Fiscal Court (sec. 44 para. 1 of the Code of Procedure of Fiscal Courts (FGO)).
What is an appeal against a tax assessment?
An appeal is the statutory remedy available against decisions issued by the tax authorities (sec. 347 para. 1 AO). The filing of an appeal enables taxpayers to request a renewed examination of the tax assessment by the tax office.
When reviewing the contested assessment, the tax authorities are not limited to the issues raised by the taxpayer. Rather, they generally conduct a comprehensive review of the entire tax case (sec. 367 para. 2 sentence 1 AO). Both the underlying facts and the legal assessment are subject to review.
The purpose of the appeal proceedings is to correct erroneous tax assessments, wherever possible, without the need for court proceedings. Appeal proceedings form part of the tax assessment procedure and serve as a mechanism of administrative self-review.
What effect does an appeal against a tax assessment have?
After an appeal is filed, the contested tax assessment is submitted to the tax authorities for reconsideration. As a result, the original assessment does not initially become final and binding.
However, filing an appeal does not generally suspend the obligation to pay the assessed tax. The payment obligation remains in place. If enforcement of the assessment is to be suspended, a separate application for suspension of enforcement must generally be filed (sec. 361 AO).
Filing an appeal may also affect the limitation period for tax assessments. As long as no final decision has been issued with respect to the contested tax claim, the assessment period does not generally expire (sec. 171 para. 3a AO).
What deadline applies to an appeal against a tax assessment?
The deadline for filing an appeal is generally one month from the notification of the tax assessment (sec. 355 para. 1 AO).
For the calculation of the deadline, the relevant date is not the date of the tax assessment itself but the date on which the tax assessment is deemed to have been notified to the taxpayer (sec. 122 AO). Failure to meet the deadline will generally result in the assessment becoming final and binding.
In certain exceptional cases, a longer deadline may apply. For example, if the information on available legal remedies is missing or incorrect, the deadline for filing an appeal is generally extended to one year (sec. 356 para. 2 AO).
Under certain circumstances, a taxpayer may also be granted restoration to the original legal position (sec. 110 AO).
How is an appeal filed?
The appeal must be filed with the tax authorities that issued the contested assessment (sec. 357 para. 2 AO).
An appeal may be filed in writing, electronically or by declaration recorded by the tax authorities (sec. 357 para. 1 AO). To be valid, it is generally sufficient to state that an appeal is being filed against a specific tax assessment. No particular wording is required. Even if the taxpayer incorrectly refers to the remedy as an “objection” or a “complaint”, this will generally not affect its validity (sec. 357 para. 1 sentence 3 AO).
A detailed statement of grounds does not necessarily need to be submitted with the appeal. In practice, it is often advisable to file the appeal within the applicable deadline and submit the statement of grounds at a later stage (sec. 357 para. 3 AO).
How do appeal proceedings work?
Filing the appeal
The first step is to file the appeal within the applicable deadline (secs. 355, 357 AO). The taxpayer or their advisor (hereinafter referred to as “the appellant”) files the appeal with the competent tax authorities. This prevents the tax assessment becoming final and binding and triggers a review of the assessment by the tax authorities.
Establishing the facts
The next step is to establish the factual background of the disputed issues. This often involves reviewing documents, analysing the relevant tax matters and clarifying any outstanding questions with the tax authorities..
Statement of grounds
Based on the established facts, the appellant prepares the legal arguments supporting the appeal against the tax assessment. Clear and consistent reasoning, taking into account statutory law, case law and the tax authorities’ administrative guidance, is essential.
Discussion of the facts and legal position
During appeal proceedings, it may be advisable to discuss the facts and legal position with the tax authorities. Such a discussion may take place either at the appellant’s request or at the initiative of the tax authorities. The aim is to address the relevant factual and legal issues, narrow the matters in dispute and facilitate an appropriate resolution. In particular, such discussions can help to accelerate proceedings in complex cases (sec. 364a German Fiscal Code).
Where appropriate, it may also be advisable to request a suspension of the appeal proceedings, especially where a decision by the Federal Fiscal Court, the Court of Justice of the European Union or another court relevant to the case is still pending (sec. 363 AO).
Review by the tax office
As a general rule, the tax authorities review the contested assessment in its entirety (sec. 367 para. 2 sentence 1 AO). The review is not limited to the arguments put forward by the taxpayer. For this reason, the appeal proceedings are often referred to as an "extended assessment procedure”.
Conclusion of the proceedings
Appeal proceedings are concluded by way of a remedial action or through the issuance of a formal appeal decision (secs. 366, 367 AO). In appropriate cases, the tax authorities may also rule on individual disputed issues in advance by issuing a partial appeal decision (sec. 367 para. 2a AO).
Responsibility for deciding the appeal generally lies with the department within the tax authorities that is responsible for appeal proceedings. If the tax authorities grant the appeal, the tax assessment is amended accordingly. If they consider the appeal to be unfounded, they issue a formal appeal decision, which may subsequently be challenged before the Fiscal Court.
Must the assessed tax be paid despite the appeal?
An appeal generally does not result in a suspension of the enforcement of the contested tax assessment (sec. 361 para. 1 AO). Therefore, the obligation to pay generally remains unaffected.
Taxpayers wishing to avoid immediate payment should consider whether an application for suspension of enforcement should be filed in addition to the appeal (sec. 361 para. 2 AO). In particular, suspension of enforcement may be granted where there are serious doubts as to the legality of the tax assessment or where enforcement would cause undue hardship.
A suspension of enforcement temporarily prevents the tax authorities from enforcing the contested administrative act.
What risks are associated with appeal proceedings?
Possibility of a less favourable outcome
As stated above, the tax authorities review the contested tax assessment in its entirety (sec. 367 para. 2 sentence 1 AO). As a result, the assessed tax may not only be reduced but may actually be increased during the appeal proceedings.
Such a less favourable outcome is explicitly permitted under German tax procedural law (sec. 367 para. 2 sentence 2 AO). However, before amending the tax assessment to the detriment of the taxpayer, the tax authorities must notify the taxpayer accordingly and provide an opportunity for the taxpayer to comment. The taxpayer may then decide whether to maintain or withdraw the appeal.
Incomplete presentation of the facts
Unclear, inconsistent, or incomplete information may complicate the legal assessment of the case and adversely affect the taxpayer’s ability to assert its legal position.
A well-structured presentation of the facts is therefore often just as important as the legal arguments themselves.
Missed procedural opportunities
Taxpayers who miss deadlines or fail to make use of available procedural options may permanently lose important legal rights. This applies, in particular, to the timely filing of an appeal, applications for suspension of enforcement and the strategic coordination of submissions made to the tax authorities.
Representation in appeal proceedings before the tax authorities
We assist taxpayers, persons liable for tax debts, businesses, tax departments, and advisors in assessing whether an appeal should be filed against a tax assessment and support them throughout the appeal proceedings until their conclusion.
Our services include analysing the contested tax assessment, reviewing and legally assessing the underlying facts of the case and developing a robust legal substantiation of the appeal. In doing so, we consider not only the tax assessment itself but also interest, late payment penalties and other ancillary tax charges.
During the appeal proceedings, we represent your interests vis-à-vis the tax authorities, coordinate communications with the competent tax office, and assist in discussions of the facts and legal issues. Our aim is to clearly identify factual and legal objections and to achieve an appropriate resolution at the administrative stage, without the need for court proceedings.
Particularly in the fields of VAT, customs and excise duties, as well as other indirect taxes, appeal proceedings often require the analysis of complex contractual arrangements and supply chains, consideration of EU law requirements and an assessment of current case law. Due to our high degree of specialisation, we help clients identify prospects of success and tax risks at an early stage, develop legally sound tax positions and effectively represent their interests before the tax authorities.
Where appeal proceedings coincide with tax criminal proceedings, for example in the context of an ongoing tax investigation or tax crime proceedings, the appeal strategy should be closely coordinated with the criminal defence strategy. Statements made to the tax authorities may also be relevant for the criminal proceedings. Although tax assessment proceedings and criminal proceedings are generally separate proceedings, findings made in one proceeding may affect the other. Under certain circumstances, it may also be possible to apply for the suspension or stay of one of the proceedings (see secs. 396 AO, sec. 74 FGO).
FAQ on appeals against tax assessments
Is filing an appeal always necessary?
Not necessarily. Depending on the circumstances, procedural alternatives to filing an appeal may be available. For example, a taxpayer may apply for a simple amendment of a tax assessment (sec. 172 para. 1 sentence 1 no. 2 lit. a AO). Where a tax assessment remains subject to review, an amendment may also be requested pursuant to sec. 164 para. 2 sentence 2 AO. Unlike appeal proceedings, a request for amendment does not generally keep the entire tax assessment open for review. In addition, the review carried out by the tax authorities is usually limited to the requested amendment. Whether an appeal or another procedural remedy is the appropriate course of action depends on the circumstances of the individual case.
Is it necessary to file a separate appeal against interest assessments?
Not necessarily. As a general rule, interest assessments are ancillary to the underlying tax assessment and therefore follow its legal fate. If an appeal against the underlying tax assessment is successful and the assessment is amended, the tax authorities will generally adjust the corresponding interest assessment accordingly. In many cases, a separate appeal against the interest assessment is therefore not required.
However, a separate appeal must be filed if only the interest assessment is being challenged, for example due to an incorrect calculation or because independent legal objections are raised against the interest assessment itself, such as incompatibility with EU law or unconstitutionality.
Can third parties file appeals against tax assessments?
Under certain circumstances, yes. A third-party appeal may be possible where a tax assessment has been issued to another person but the third party is in a position to assert its own rights protected under tax law (sec. 350 AO). This may be relevant in specific situations, for example in the context of a competitor appeal.
However, the third party must be directly and adversely affected by the contested assessment (so-called third-party impact). The alleged infringement must relate to the third party's own legally protected position under tax law. Mere economic disadvantages or a general interest in ensuring the lawful taxation of another person are generally not sufficient.
How long do I have to file an appeal against a tax assessment?
As a rule, an appeal must be filed within one month of the notification of the tax assessment (sec. 355 para. 1 AO). Once this period has expired, the tax assessment generally becomes final and binding.
Must an appeal against a tax assessment be substantiated?
No, not immediately. To comply with the appeal deadline, it is sufficient to file the appeal in due time (see sec. 357 para. 3 AO). The grounds for the appeal may be submitted at a later stage. However, any deadlines imposed by the tax authorities for substantiating or supplementing submissions must be observed (in particular, statutory exclusion deadlines, sec. 364b para. 1 AO). Following the expiry of such a period, certain objections will no longer be considered in the subsequent proceedings.
How much do appeal proceedings cost?
Appeal proceedings before the tax authorities are generally free of charge. Costs are typically incurred for tax or legal advice. As a rule, these costs are only (partially) recoverable following successful court proceedings (sec. 139 FGO).
Can I withdraw an appeal?
Yes. An appeal may be withdrawn at any time until such time as the parties are notified of the appeal decision (sec. 362 para. 1 AO).
Withdrawal terminates the appeal proceedings. The tax assessment then generally remains unchanged and becomes final and binding. Withdrawal may be considered, in particular, where the tax authorities have announced their intention to amend the tax assessment to the taxpayer’s detriment.
Can the tax authorities amend the tax assessment to my detriment during the appeal proceedings?
Yes. The tax authorities may also amend a tax assessment to the taxpayer’s detriment during the appeal proceedings (sec. 367 para. 2 sentence 2 AO).
However, before issuing such an amendment, the tax authorities must notify the taxpayer accordingly and provide an opportunity for the taxpayer to comment. Until the taxpayer is notified of the appeal decision, the taxpayer may therefore consider whether to maintain or withdraw the appeal (sec. 362 para. 1 AO).
Must I pay the disputed tax despite filing an appeal?
As a general rule, yes. Filing an appeal does not suspend the obligation to pay the assessed tax (sec. 361 para. 1 AO). Where appropriate, a separate application for suspension of enforcement may be filed (sec. 361 para. 2 AO).
What happens if the tax authorities reject the appeal?
If the tax authorities do not grant the appeal, the taxpayer may generally bring an action before the Fiscal Court within one month of notification of the appeal decision (secs. 44, 47 FGO).
How long do appeal proceedings before the tax authorities take?
As a general rule, no statutory deadlines apply to appeal proceedings. The duration of the proceedings depends, in particular, on the complexity of the underlying facts and the processing of the case by the tax authorities. Appeal proceedings may therefore take anywhere from a few months to several years.
Can appeal proceedings be expedited?
In many cases, yes. The prompt submission of a statement of grounds and all requested documentation can facilitate the review by the tax authorities and help shorten the duration of the proceedings. An early discussion of the facts and legal position with the department responsible for appeal proceedings may also be beneficial.
If the tax authorities fail to issue a decision for an extended period without sufficient justification, the taxpayer may first remind the tax authorities of the pending appeal by way of an informal written request. If the matter remains unresolved, an action for failure to act may be available pursuant to sec. 46 FGO. Such an action may generally be brought where no decision on the administrative appeal has been issued within a reasonable period of time without sufficient justification. As a rule, a period of six months is considered relevant in this context.
Is an appeal a prerequisite for bringing an action before the Fiscal Court?
In most cases, yes. Before an action can be brought before the Fiscal Court, the taxpayer must generally complete the administrative appeal procedure (sec. 44 para. 1 FGO). Accordingly, filing an appeal is usually a prerequisite for judicial review by the Fiscal Court. An exception applies in the case of a direct action before the Fiscal Court (“Sprungklage”) pursuant to sec. 45 FGO.
