Last Updated on May 31, 2021 by LawEuro
The Fiscal Code of Germany
3rd Subchapter
Taxation principles, evidence
I. General
Section 85
Taxation principles
The revenue authorities shall assess and levy taxes in a uniform manner in accordance with applicable laws. In particular, they shall ensure that taxes are not understated, or levied unjustly, or that tax refunds and rebates are not granted or denied incorrectly.
Section 86
Commencement of proceedings
The revenue authority shall exercise due discretion in deciding whether and when to commence administrative proceedings. This shall not apply when the revenue authority by law
1. must act ex officio or upon application,
2. may only act upon application and no such application is submitted.
Section 87
Official language
(1) The official language shall be German.
(2) Where applications are made to a revenue authority in a foreign language, or petitions, records, documents, certificates or other documents are filed in a foreign language, the revenue authority may require that a translation be provided without undue delay. In justified cases, the revenue authority may require submission of a notarised translation or a translation by a publicly authorised or sworn interpreter or translator. Where the required translation is not furnished without undue delay, the revenue authority may itself arrange for a translation at the expense of the participant. Where the revenue authority has availed itself of the services of interpreters or translators, these shall receive remuneration in corresponding application of the Judicial Remuneration and Compensation Act.
(3) Where a notice, application or statement of intent is made with the intention of fixing a period within which the revenue authority is to act in a certain manner, and where these are received in a foreign language, the period shall commence only at that point in time at which a translation is available to the revenue authority.
(4) Where a notice, application or statement of intent received in a foreign language is made with the intention of fixing a period for a participant vis-à-vis the revenue authority, of enforcing a claim under public law or requiring the fulfilment of an action, the notice, application or statement of intent shall be deemed to have been received on the date of their receipt by the revenue authority, where at the revenue authority’s request a translation is provided within a suitable period to be fixed by the revenue authority. Otherwise, the moment of receipt of the translation shall be deemed definitive, unless international agreements provide otherwise. Reference shall be made to such legal consequence when the period is being fixed.
Section 87a
Electronic communication
(1) The transmission of electronic documents shall be permissible insofar as the recipient provides this possibility. An electronic document shall be deemed as having been received as soon as the intended receiving entity has recorded it in a format which is capable of being processed by the addressee; section 122(2a), section 122a and section 123, second and third sentences, shall remain unaffected. If the revenue authority transmits data that are subject to tax secrecy, the data shall be encrypted using an appropriate method. Temporary automated decryption that is performed by an accredited service provider during the transmission of a DE-Mail message for the purpose of checking for malware and for the purpose of forwarding the data to the addressee of the DE-Mail message does not violate the encryption requirement under the third sentence above. Electronic notifications stating that data are available for retrieval or that electronically transmitted data have been received by the revenue authorities may be sent unencrypted.
(2) Where an electronic document transmitted to the revenue authority is not suitable for processing by it, the revenue authority shall inform the sender without undue delay, stating the technical specifications that apply. Where a recipient claims that he is unable to process the electronic document transmitted by the revenue authority, the revenue authority shall resend it to him in a suitable electronic format or as a written document.
(3) Where it is stipulated by law that applications, declarations or notifications to the revenue authorities must be submitted in writing, such written communication may be replaced with electronic communication unless otherwise required by law. To qualify as electronic, it shall suffice for an electronic document to bear a qualified electronic signature. When signing, a person may use a pseudonym only if that person provides evidence of his or her identity to the revenue authorities. Written communication may also be replaced with
1. the direct submission of a declaration using an electronic form that the authorities make available via an input device or via publicly accessible networks;
2. the transmission of an electronic document to the authorities using the method of transmission specified in section 5(5) of the DE-Mail Act.
In cases under the fourth sentence number 1, input via publicly accessible networks shall take place using a secure proof of identity pursuant to section 18 of the Identity Card Act or section 78(5) of the Residence Act.
(4) Where it is stipulated by law that administrative acts or other measures of the revenue authorities must be in writing, such written communication may be replaced with electronic communication unless otherwise required by law. To qualify as electronic, it shall suffice for an electronic document to bear a qualified electronic signature. Written communication may also be replaced with the transmission of a DE-Mail message in accordance with section 5(5) of the DE-Mail Act where the confirmation by the accredited service provider indicates that the issuing revenue authority is the user of the DE-Mail account. For transcripts that must be recorded in writing by revenue authorities, the first and third sentences above shall apply only where expressly permitted by law.
(5) If an electronic document constitutes an item of evidence, the evidence shall be deemed supplied once the file has been submitted or transmitted; if neither the taxpayer nor the revenue authority is in possession of the file, section 97 shall apply accordingly. Section 371a of the Code of Civil Procedure shall apply accordingly with regard to the probative value of electronic documents.
(6) Unless otherwise specified, electronic transmissions of officially prescribed data sets to revenue authorities shall be done using a secure method that authenticates the sender of the data and guarantees the confidentiality and integrity of the data set. If, for purposes of authentication, the sender of the data uses electronic identity verification in accordance with section 18 of the Identity Card Act or section 78(5) of the Residence Act, the data necessary for this purpose may be stored and used together with the other transmitted data.
(7) If an electronic administrative act is sent to the recipient in accordance with section 122(2a), a secure method shall be used that authenticates the transmitting office or entity within the revenue administration and that guarantees the confidentiality and integrity of the data set. A method shall be deemed secure if, in particular, the administrative act
1. bears a qualified electronic signature and is encrypted using an appropriate method or
2. is sent via a DE-Mail message in accordance with section 5(5) of the DE-Mail Act where the confirmation by the accredited service provider indicates that the issuing revenue authority is the user of the DE-Mail account.
(8) If an electronic administrative act is made available for retrieval in accordance with section 122a, a secure method shall be used that authenticates the revenue administration office or entity responsible for making the data available and that guarantees the confidentiality and integrity of the data set. The person who is authorised to retrieve the data shall authenticate himself. The second sentence of subsection (6) shall apply accordingly.
Section 87b
Conditions for transmitting data to revenue authorities via electronic means
(1) In consultation with the highest revenue authorities of the Länder, the Federal Ministry of Finance may make specifications pertaining to data sets as well as to further technical details in connection with the electronic transmission of tax returns, documents accompanying tax returns, data contained in authorisations as per section 80a, data as defined in section 93c and other data that need to be provided for the taxation procedure using officially prescribed data sets. It shall not be necessary for the Federal Ministry of Finance to consult with the highest revenue authorities of the Länder if the data are transmitted solely to federal revenue authorities.
(2) Persons who electronically transmit officially prescribed data sets to revenue authorities shall make proper use of the interfaces officially designated for this purpose for the relevant tax period or tax date in accordance with subsection (1) above. The officially designated interfaces will be made available on the internet.
(3) For procedures that are conducted via the central agency as defined in section 81 of the Income Tax Act, the Federal Ministry of Finance may issue ordinances with the consent of the Bundesrat that lay down basic data transmission rules and that specify who is responsible for enforcing claims notices. Rules may be specified in particular for the following:
1. the process for identifying participants in the procedures,
2. details regarding the form, content, processing and storage of the data to be transmitted,
3. the method of data transmission,
4. the obligations of third parties to cooperate and
5. the testing of procedures.
In setting rules on the transmission of data, ordinances may make reference to publications by expert bodies. In such cases, the date of publication, the reference source and an official location where the publication is securely archived shall be indicated.
Section 87c
Use of unofficial data processing programmes in taxation procedures
(1) If unofficial data processing programmes are utilised in taxation procedures for the purpose of processing data, such programmes must ensure the correct and complete processing of such data within the scope of the programme size specified in the programme description.
(2) The size of a programme, together with a description of exceptional cases where the programme cannot process data correctly and completely, must be indicated prominently in programme descriptions.
(3) Before programmes are approved for operative use, and following each modification approved for operative use, manufacturers must test the programmes to determine whether they fulfil the requirements specified in subsection (1) above. As part of this process, a protocol of the most recently conducted test and a programme listing must be produced, and then retained for a period of five years. The retention period stipulated in the second sentence above shall begin with the expiration of the calendar year when the programme was first approved for operative use; in the case of modifications to a programme already approved for operative use, the retention period shall begin no earlier than the expiration of the calendar year when the modification was first approved for operative use. Electronic, magnetic or optical storage methods that enable the programme version currently in use to be reproduced in printed form at any time shall be equivalent to a programme listing.
(4) Revenue authorities have the right to review programmes and documentation. The obligations of taxpayers to cooperate pursuant to section 200 shall apply accordingly. In the event of a defective programme, revenue authorities shall contact the manufacturer or distributor without delay to request repair or replacement. If repair or replacement is not carried out without delay, revenue authorities shall have the right to ban the manufacturer’s programmes from being used for the electronic transmission of data to revenue authorities. Revenue authorities shall not be obligated to test programmes. Section 30 shall apply accordingly.
(5) If a programme is intended for general sales and distribution, the manufacturer shall, upon request, provide revenue authorities with samples for the purpose of testing in accordance with subsection (4) above.
(6) The obligations of programme manufacturers under the foregoing provisions shall be based exclusively in public law.
Section 87d
Third-party transmission of data to revenue authorities
(1) Third parties (contractors) may be commissioned with transmitting to revenue authorities, for tax purposes, data that must be submitted using officially prescribed data sets and officially designated interfaces via remote data transmission, or data that are submitted voluntarily.
(2) Before transmitting the data, contractors must verify the identity and address of the contracting party (identification) and record the relevant information in suitable form. If a contractor has already identified the contracting party on a previous occasion and recorded the relevant information, he does not need to repeat the identification process unless external circumstances cause him to doubt whether the information gathered previously to identify the contracting party is still correct. Contractors shall ensure that they are able at any time to provide information on the identity of the party that commissioned the transmission of data. The information recorded pursuant to the first sentence above shall be retained for a period of five years; the retention period shall begin with the expiration of the year when the most recent transmission of data was carried out. The obligation to be ready to provide information under the third sentence above shall expire with the end of the retention period under the fourth sentence above.
(3) Contractors shall present the data, in a form that can be easily checked, to contracting parties for approval. Contracting parties shall check without delay whether the data presented to them by contractors are complete and correct.
Section 87e
Exceptions for import and export duties, excise duties and aviation tax
Unless otherwise specified, section 72a and sections 87b to 87d shall not apply to import and export duties, excise duties and aviation tax.
Section 88
Principle of investigation
(1) The revenue authorities shall investigate the facts of a case by virtue of office. In doing so, they shall take all relevant circumstances into account, including those that are favourable to the participants.
(2) The revenue authorities shall determine the type and scope of investigations based on the circumstances of each individual case and based on the principles of consistency, lawfulness and proportionality; they shall not be bound by motions for the submission of evidence or by submissions made by the participants. Decisions on the type and scope of investigations may take the general experience of revenue authorities, as well as cost-effectiveness and expedience, into account.
(3) To ensure the timely and consistent execution of tax laws, the highest revenue authorities may, for identified or identifiable categories of cases, issue instructions on the type and scope of investigations and the processing of data collected or recorded, unless otherwise required by law. Such instructions may take the general experience of revenue authorities, as well as cost-effectiveness and expedience, into account. Such instructions may not be made public if doing so could jeopardise the consistency and lawfulness of taxation. Instructions by the highest Land revenue authorities in accordance with the first sentence above shall require the agreement of the Federal Ministry of Finance if the Land revenue authorities administer taxes on behalf of the Federation.
(4) When they receive data meant for forwarding to Land revenue authorities, both the Federal Central Tax Office and the central agency as defined in section 81 of the Income Tax Act may refrain from forwarding such data to the Land revenue authorities if attributing or assigning the data to a specific taxpayer or tax office is impossible or requires unreasonable effort. Data attributed or assigned to a specific taxpayer or tax office in accordance with the first sentence above shall be forwarded to the Länder, taking into account any instructions issued by the Federal Ministry of Finance in accordance with subsection (3) above. Data not forwarded to Land revenue authorities shall be stored by the Federal Central Tax Office for the purpose of proceedings described in section 30(2) numbers 1a) and 1b), until the expiration of the 15th year following the year when the data were received. Data stored in accordance with the third sentence above may be processed only for use in proceedings described in section 30(2) numbers 1a) and 1b) and for purposes of monitoring data protection.
(5) Revenue authorities may use automated systems (risk management systems) to gauge whether further investigations and reviews are necessary to ensure the consistent and lawful assessment of taxes and tax rebates and the consistent and lawful crediting of withheld taxes and prepayments. The principle of cost-effective administration should be taken into account here. At a minimum, risk management systems must ensure that:
1. a sufficient number of cases are selected, on the basis of random selection, for comprehensive review by officials,
2. officials review those cases sorted out as requiring review,
3. officials are able to select cases for comprehensive review,
4. regular reviews are conducted to determine whether risk management systems are fulfilling their objectives.
The details of risk management systems must not be made public if doing so could jeopardise the consistency and lawfulness of taxation. For taxes administered by Land revenue authorities on behalf of the Federation, the highest Land revenue authorities shall, in consultation with the Federal Ministry of Finance, specify the details of risk management systems with a view towards ensuring that the execution of tax laws is consistent on a nationwide basis.
Section 88a
Collection of protected data
To the extent required to ensure the uniform assessment and levying of taxes, the revenue authorities may process data protected under section 30 in filing systems, including for future procedures/proceedings as described in section 30(2) numbers 1a and 1b, in particular to obtain comparable values. Processing of the data shall be permissible only for procedures/proceedings as described in section 30(2) numbers 1a and 1b.
Section 88b
Nationwide retrieval and use of data to prevent, investigate and prosecute understatements of tax
(1) Data stored by revenue authorities for the purpose of conducting administrative proceedings in tax matters, criminal proceedings for tax crimes or administrative proceedings for tax-related administrative offences may be made available for reciprocal retrieval and then, in order to prevent, investigate or prosecute
1. understatements of tax across more than one Land,
2. understatements of tax with international ramifications, or
3. understatements of tax with significant ramifications,
reciprocally retrieved, reviewed via automated data cross-checking, used and stored, even if such data are protected under section 30.
(2) The findings of data analyses under subsection (1) above shall be made available electronically to the relevant competent revenue authorities.
(3) The respective competent Land government shall stipulate by way of ordinance which Land revenue authorities are responsible for the activities referred to in subsections (1) and (2) above. The Land government may issue an ordinance delegating this duty to the highest Land authority responsible for the revenue administration.
Section 89
Advice, information
(1) The revenue authority shall solicit the filing of statements, the submission of applications or the correction of statements or applications when it is clear that these were not filed or submitted, or filed or submitted incorrectly, due to an error or a lack of knowledge. It shall, where necessary, furnish information regarding the rights and duties of participants in the administrative proceedings.
(2) Tax offices and the Federal Central Tax Office may upon request provide advance rulings on the tax treatment of precisely defined, as yet unrealised circumstances if this is of particular interest due to the existence of significant tax implications. The revenue authority that would have local jurisdiction if the underlying circumstances specified in the request were to be realised shall be responsible for issuing an advance ruling. Where no revenue authority has jurisdiction under sections 18 to 21 for the applicant at the time the request is filed, jurisdiction shall lie with the Federal Central Tax Office for taxes administered by Land revenue authorities on behalf of the Federation, notwithstanding the second sentence above; in such cases, an advance ruling shall also bind the revenue authority that has jurisdiction upon realisation of the underlying circumstances specified in the ruling. The competent revenue authority should make a decision on a request for an advance ruling within six months after the request is received; if the revenue authority cannot make a decision on a request by this deadline, it shall notify the applicant accordingly, stating its reasons. The Federal Ministry of Finance shall be authorised to stipulate, by way of ordinances issued with the consent of the Bundesrat, more detailed provisions on the form, content and conditions of requests for advance rulings, and on the scope of the binding effect of such rulings. Ordinances may also specify the conditions under which single advance rulings are to be issued that apply to multiple participants and which revenue authority is responsible for issuing advance rulings in such cases. Such ordinances above shall not require the consent of the Bundesrat where they concern insurance tax.
(3) A fee shall be charged for processing requests for advance rulings in accordance with subsection (2) above. In cases where a single advance ruling is issued that applies to multiple applicants, only one fee shall be charged; in such cases, all applicants are jointly liable for the fee. The fee shall be payable by the applicant within one month following notification that the fee has been set. The revenue authority may delay its decision on an application until the fee has been paid.
(4) Fees shall be calculated on the basis of the value the advance ruling represents for the applicant (object value). The applicant should state the object value and the circumstances relevant to its determination in his application for advance ruling. Fees are to be calculated by the revenue authority on the basis of the object value as declared by the applicant insofar as this does not lead to an obviously incorrect resultant amount. Where the value of the object cannot be determined even by way of estimate, a time related fee shall be charged; this shall be 50 euros per half hour or portion thereof, the minimum charge being 100 euros.
(5) In corresponding application of section 34 of the Court Fees Act, the fee shall be levied at a rate of 1.0 percent. Section 39(2) of the Court Fees Act shall apply accordingly. If the object value is less than 10,000 euros, no fee shall be levied.
(6) If the object value is not determinable and cannot be determined by way of estimate, a time-related fee shall be charged; this shall be 50 euros for each half hour of processing time or portion thereof. If the processing time is less than two hours, no fee shall be levied.
(7) The fee may be waived in full or in part where its collection would be unreasonable in individual cases. In particular, the fee may be reduced where an application for advance ruling is withdrawn before the revenue authority’s decision is issued.
Section 90
Obligation of participants to cooperate
(1) Participants shall be obliged to cooperate with the authorities in establishing the facts of the case. They shall discharge this obligation in particular by the full and truthful disclosure of the facts relevant for taxation and by indicating any evidence known to them. The extent of this obligation shall be determined by the circumstances of the individual case.
(2) Where circumstances relating to transactions effected outside the territory of application of this Code are to be established and subjected to the provisions of tax law, the participants shall clarify these circumstances and procure the necessary evidence. In doing so, they shall exhaust all legal and practical means available to them. Where there are objectively recognisable indications to assume that the taxpayer has business relations with financial institutions in a state or territory with which there is no agreement to provide information in accordance with Article 26 of the OECD Model Tax Convention on Income and on Capital in the version of 2005, or the state or the territory does not provide information to a comparable extent or is not willing to engage in a corresponding provision of information, the taxpayer shall at the revenue authority’s request make a sworn statement affirming the correctness and completeness of the details provided by him and authorise the revenue authority to assert on his behalf, both in and out of court, the possible entitlement to information against the credit institutions named by the revenue authority; the sworn statement may not be compelled pursuant to section 328. A participant may not plead inability to clarify circumstances or to submit evidence when he, depending on the case, could, in structuring his circumstances, have afforded himself or have himself given the opportunity to do so.
(3) Taxpayers shall keep records on the nature and content of their business relations that fall under the definition provided under section 1 subsection (4) of the External Tax Relations Act. The obligation to keep records shall encompass business transactions (documentation of facts); the economic and legal aspects of any arm’s length agreement on terms of business, especially prices (transfer prices); and information on when the transfer prices were set, which transfer pricing method was used, and which comparability data were used (documentation of commensurateness). If a taxpayer is required to keep records as described in the first sentence above for an enterprise that forms part of a multinational enterprise group, such records shall include an overview of the type of business activities conducted by the enterprise group and of the transfer pricing method used by the group, unless the enterprise’s revenue in the previous financial year totalled less than 100 million euros. A multinational enterprise group is any group comprised of at least two enterprises that are related within the meaning of section 1 subsection (2) of the External Tax Relations Act and that are resident in different countries, or any group comprised of at least one enterprise with at least one permanent establishment in another country. Revenue authorities should require the submission of records only for the purpose of conducting an external audit. Such submissions shall be governed by section 97. Submissions shall be made on request within a period of 60 days. Records of exceptional business transactions shall be compiled as soon as possible and submitted within a period of 30 days upon request by the revenue authorities. The period for submission stipulated in the seventh and eighth sentences above may be extended in duly justified individual cases. Additional records shall be submitted upon request by the revenue authorities. In order to ensure the uniform application of the law, the Federal Ministry of Finance shall be authorised to stipulate, by way of ordinances issued with the consent of the Bundesrat, the type, content and extent of the records to be kept.
Section 91
Participant consultation
(1) Before an administrative act affecting the rights of a participant may be issued, he should be given the opportunity to comment on the facts relevant to the decision. This shall apply particularly where there is to be a significant departure from the facts declared in the tax return to the detriment of the taxpayer.
(2) The consultation may be dispensed with when not required by the circumstances of an individual case, in particular when
1. an immediate decision appears necessary because of imminent danger or in the public interest,
2. such consultation would jeopardise the observance of a time limit material to the decision,
3. there is not to be a divergence to a participant’s disadvantage from the actual details he provided in an application or statement,
4. the revenue authority intends to issue a general order or similar administrative acts in large numbers or administrative acts using automated systems,
5. measures of enforcement are to be taken.
(3) The consultation shall not take place if it conflicts with an overriding public interest.
Section 92
Evidence
Exercising due discretion, the revenue authority shall use such evidence as it deems necessary to ascertain the facts of the case. In particular it may
1. gather information of all kinds from the participants and other persons,
2. consult experts,
3. procure certificates and files,
4. carry out inspections.
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