Tax Disputes Comparative Guide

1 Legal framework

1.1 Which laws govern taxation and tax disputes in your jurisdiction?

Taxation rules: General taxation rules are laid down in:

• the Fiscal Code; and
• various special tax codes, such as:
• • the Income Tax Code; and
  • the Corporate Tax Code.

Tax proceedings rules: The Fiscal Code includes general provisions on:

• tax filings;
• tax reviews;
• tax assessments; and
• tax collection.

Tax disputes rules: A tax dispute – in the sense of a dissent of opinions about a certain tax issue – can arise at any stage of the tax proceedings. However, a formal tax dispute typically starts with an appeal proceeding, which is governed by the Fiscal Code.

In cases – among others – where the tax authorities deny the appeal, the taxpayer has the right to file a complaint to the fiscal court (first instance). The fiscal lawsuit is governed by the Finance Court Code.

Appeals against fiscal court decisions are possible if certain conditions are met. The responsible court is the Federal Court of Finance, which has final decision-making power. The respective proceedings are also covered by the Finance Court Code.

Administrative penalty and penal tax rules: Sometimes tax disputes also include allegations of a violation of tax rules with penal relevance.

German law distinguishes between administrative offences and criminal offences. The latter is the more severe type of offence, to which prison sentences may apply. In certain circumstances, a violation of tax rules can result in:

• an administrative offence (eg, non-compliance with book-keeping requirements); and/or
• a criminal offence (tax evasion; intentionally stating false information).

In such cases, administrative offence proceedings will be governed by the Administrative Offences Act. The general criminal law rules of the Criminal Code apply in tax criminal cases; as do the criminal proceedings rules from the Criminal Proceedings Code.

Corporate penal law: According to German criminal law principles, corporations cannot commit criminal offences. However, administrative offences and crimes of individuals can be attributed to corporations if certain requirements are met. In such cases, the resulting proceedings against the corporation are also governed by the Administrative Offences Act or the Criminal Proceedings Code.

1.2 Do any other regional, national or supranational rules or regulations have relevance in this regard?

In Germany, general tax law, tax proceedings law, criminal law and criminal proceedings law constitute federal law, which applies throughout the country.

In rare cases, taxes are levied at the state level (eg, real estate tax), so different tax regimes will apply. However, even in such cases, the state tax rules refer to the Fiscal Code, so the general rules will still apply.

German taxation is influenced by supranational instruments such as the following, which have been incorporated into the German tax rules in accordance with supranational requirements:

• double tax treaties;
• European regulations (eg, for import value added tax (VAT));
• European directives (eg, VAT); and
• the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS).

However, the influence of supranational rules on tax dispute proceedings is quite limited. Exceptions include dispute resolution proceedings under:

• double tax treaties;
• Convention 90/436/EEC; and
• Council Directive 2017/1852.

1.3 Which authorities are responsible for enforcing the tax laws? What is their general approach to enforcement?

General taxation proceedings: Generally, taxation proceedings take place before the responsible local tax office.

Local tax offices are supported by special agencies of the states (state central tax offices) which provide support to local tax offices (eg, in special cases).

The Federal Central Tax Office provides support to state tax authorities in some areas specified by statute. It also has several of its own responsibilities, such as withholding tax refund proceedings for German non-resident taxpayers.

The German tax authorities adopt a professional but mostly strictly law-abiding approach. They are open to discussing cases and supporting taxpayers in complying with their obligations. However, they are also strictly bound by law and thus cannot relieve taxpayers from their obligations unless this is permitted by law.

Sometimes, a pro-fiscal attitude can be observed – that is, the tax authorities have a tendency to argue for the approach that is most advantageous to the state's coffers.

Penal tax proceedings: Under German criminal law, tax evasion is a criminal offence. Thus, the tax investigators must comply with the criminal proceedings law.

The German tax administration has penal tax investigation units that have police powers. They typically become involved in tax proceedings if the regular tax officers raise a suspicion that the taxpayer may have committed tax evasion. In such cases, tax investigation units may:

• apply for measures such as search orders; and
• interrogate witnesses to investigate the case.

The tax administration also has penal tax units that may lead the respective criminal proceedings instead of the prosecutor if the alleged offences are exclusively tax related and not severe. Penal tax units may issue penalty orders but do not have the power to file indictment letters with the application to open the main criminal proceedings (public criminal court proceedings).

In particularly severe cases, the penal tax proceedings are led by the public prosecutor – often by specialised departments. In some states, it is administrative practice that the prosecutor must be involved in a case if the tax damage exceeds a certain amount (eg, €100,000).

Penal tax units and the prosecutor have a predominant interest in collecting outstanding tax from tax evasion cases. Thus, preliminary confiscation of tax advantages may occur in tax evasion cases, especially where there is doubt as to whether the outstanding tax can or will be settled.

1.4 To what extent do the tax authorities cooperate with (a) other national authorities and (b) their international counterparts in enforcing the tax laws? Does this vary depending on the applicable tax?

Cooperation with national authorities: The German tax authorities receive data from various other German authorities. The following categories of data are regularly shared with the German tax authorities on an automated basis:

• registration data (eg, residence, address, family status, trade supervisory office); and
• data relevant for taxation purposes (eg, pension payments from German pension insurance, church tax data, payments from other German authorities).

All German authorities and courts are obliged to report to the German tax authorities in case of a suspicion of tax evasion.

Furthermore, the German tax authorities can request information from any German authority if the respective information is relevant to the particular tax case.

Cooperation with international authorities: The German tax authorities cooperate with tax authorities worldwide in accordance with the applicable international treaties.

Automated information exchange: Germany has agreed to several multilateral instruments that allow the automated exchange of information. Germany is actively and passively involved.

Examples include:

• the global exchange of financial information under the Common Reporting Standard; and
• within the European Union, mandatory automatic exchange of information in the field of taxation under Council Directive 2014/107/EU.

Germany has also implemented BEPS Action Point 13 regarding the automated data exchange of country reports.

Information exchange on request: Germany has an extensive tax treaty network. Most tax treaties:

• provide a legal basis for the exchange of tax relevant information on request; and
• allow for the sharing of all data that is relevant to:
• • the application of the tax treaty itself; and
  • the application of the respective national tax rules.

Some conventions also allow for the submission of spontaneous information – for example, in cases where the German tax authorities would like to inform other tax authorities about tax relevant facts.

Information exchange in penal tax matters: The exchange of information in penal tax matters follows a different set of rules. The execution, for example, of search orders or witness interrogations must comply with the rules on mutual legal assistance proceedings.

Germany has agreed to a number of respective treaties and multinational instruments (eg, Directive 2014/41/EU regarding the European Investigation Order in criminal matters), which are frequently used to exchange information in criminal matters.

2 Tax investigations

2.1 How do the tax authorities monitor compliance with the tax laws? Does this vary depending on the individual taxpayer or the applicable tax?

Compliance with tax issues is monitored by the responsible tax office as a normal part of taxation proceedings.

Many taxes are assessed by the tax authorities following the filing of the respective tax return (eg, income tax, corporate tax). For some types of taxes, a self-assessment system applies (especially for value added tax).

Independently of a tax assessment, the tax authorities can order a tax audit of taxpayers. In a tax audit, a special tax audit department reviews the taxpayer's tax returns and the underlying accounts and documentation for tax compliance.

Tax audits can be ordered for particular types of tax and are typically restricted to a certain timeframe (often three years). The likelihood and frequency of tax audits for corporations will depend on the revenues of the taxpayer. Large companies and groups are audited on an ongoing basis.

One instrument that is frequently used to ensure tax compliance is a so-called 'control notice'. Such notices can be sent to other tax offices or even to tax authorities in other countries in the course of a tax audit or tax review if the tax auditor would like to ensure that other parties that are not involved in the specific taxation proceedings are also compliant with the tax rules.

Some departments in the tax administration monitor potential risk areas on a precautionary basis – for example, by analysing public records and internet publications.

2.2 What typically triggers a tax investigation in your jurisdiction?

A tax investigation in the form of a tax audit can be triggered by:

• the revenue of the taxpayer (large cooperations are more commonly the subject of audits); or
• random selection.

Tax audits can also be triggered following the disclosure of complex tax issues or transactions by the taxpayer, either in a tax return or retroactively. In such cases, in particular corporate tax returns are often accepted as filed, but the subsequent tax assessment notices are issued on a preliminary basis. The tax audit proceedings is then used by the tax administration to allocate tax auditors who can diligently review the case at a later stage.

Tax audits can also be triggered:

• in case of the receipt of control notices from other taxation proceedings; or
• based on the receipt of data from an automatic information exchange.

2.3 What is the limitation period for commencing a tax investigation in your jurisdiction?

A tax investigation can no longer be ordered once the underlying tax claims have become legally binding – that is, when the tax limitation period has run out.

The calculation of the limitation period differs depending on the type of tax. Also, a number of events/preconditions can suspend the expiry of the limitation period. The details are complex.

Example (corporate tax/income tax): The normal limitation period for corporate/income tax is four years. The limitation period starts to run at the end of the year in which the respective corporate tax return is filed, but at the latest three years after the conclusion of the respective tax year.

The expiry of the limitation period is suspended once a tax audit is formally ordered for a particular year. The limitation period thus generally cannot run out before a tax audit is concluded.

In cases of recklessly understated taxes (administrative offence), the regular tax limitation period is five years. In cases of tax evasion (criminal offence), the regular tax limitation period is 10 years. The tax limitation period does not expire as long as the administrative offence/criminal statute of limitations has not run out. In cases of severe tax evasion, the criminal statute of limitations is 15 years.

2.4 How does a tax investigation typically unfold in your jurisdiction?

Typically, a tax investigation (tax audit) unfolds with the servicing of a tax audit order in which the tax audit is announced, including the years and taxes to be audited.

The tax auditor then requests electronic data and paper files that are expected to be required for the tax audit. Also, the place of the tax audit is agreed on.

The tax audit may be conducted in:

• rooms provided by the taxpayer (this is often the case for larger corporations); or
• the office of the taxpayer's tax adviser (for smaller companies or individuals).

Sometimes – for example, if all documents are available in electronic format – the tax auditor works from his or her office.

During the tax audit, the tax auditor often raises questions and requests additional documents. The taxpayer is obliged to support the tax auditor in this regard.

The tax audit is concluded with a final discussion of the results of the audit and the provision of a tax audit report to the taxpayer. The tax audit report sets out the findings of the tax auditor and the planned amendments to previous tax assessments. The taxpayer is often given the opportunity to comment on the draft report before it is finally issued.

Once the tax audit report has been issued, the tax office will issue an amended tax assessment notice based on the findings of the tax audit. This concludes the tax audit.

2.5 What is the typical timeframe for the investigation?

This depends on the complexity of the case and the size of the taxpayer. Tax audits of large cooperations and groups can take years.

2.6 What powers do the tax authorities have in conducting their investigation, in relation to (a) the taxpayer itself, (b) its employees and (c) third parties?

The taxpayer must cooperate with the tax auditor and provide the requested information and documents.

If the taxpayer is unwilling or unable to provide the requested information, the tax auditor may also request information from employees of the taxpayer.

If the taxpayer and its employees are unwilling or unable to provide information that is required for the tax audit, the tax auditor can also request information from third parties.

2.7 On what grounds, if any, can taxpayers refuse to disclose commercial information during the investigation?

Generally, the taxpayer may not refuse to disclose material that is relevant for the tax audit.

This also applies to employees and third parties if the tax authorities request information on a valid legal basis (eg, if the taxpayer does not cooperate).

In criminal investigations, the taxpayer is not obliged to provide material that might incriminate it (the nemo tenetur principle). However, in taxation proceedings, non-cooperation on these grounds could still be detrimental to the taxpayer, as refusal to cooperate could allow the tax auditor to estimate the taxes due.

2.8 Can the taxpayer object to or challenge the tax investigation? Are any other avenues available for resolving the matter?

Appeals can be filed at certain stages of the tax audit proceedings.

In an appeal, the taxpayer can object to:

• the formal initiation of a tax audit; and
• the final tax assessments to be issued after conclusion of the tax audit.

If the appeal is successful, the tax authorities will revise their decision. If the respective decision is upheld, the taxpayer can then file a lawsuit against it.

2.9 What actions can the tax authorities take if the taxpayer does not cooperate in the investigation?

If the taxpayer, employees or third parties deny information requests, the tax authorities can issue a penalty payment to enforce cooperation or even seize the requested documents (with the approval of a court).

If information is not provided, tax auditors often apply tax estimates instead of the actual determination of the tax basis. Such estimates are often detrimental to the taxpayer and in fact force the taxpayer to cooperate.

If there is a suspicion of tax evasion or a tax offence arises during the tax audit, the tax auditor must inform the taxpayer immediately. In such cases, the tax audit must adhere to the nemo tenetur principle – that is, information requests against the taxpayer can no longer be enforced so that the taxpayer does not incriminate itself. However, the tax auditor will still be entitled to detrimental tax estimates.

2.10 Can the tax authorities exercise discretion in their treatment of the taxpayer in exceptional circumstances (eg, insolvency)?

The tax authorities can apply a limited degree of discretion in exceptional circumstances. This mainly concerns the collection of outstanding tax.

German tax officers by law are obliged to assess the tax in line with the tax laws; thus, discretion in the course of tax assessment proceedings is quite limited (but see question 2.11).

2.11 Do tax authorities have any leeway to settle in the course of tax investigations?

In practice, tax officers have broad leeway in interpreting and considering the evidence. As such, the extent to which circumstances are explored or accepted as fact is up to the discretion of the tax officer. In practice, this often leads to the agreement of compromises between the taxpayer and the tax office during tax review proceedings.

In the course of tax audits, a so-called 'mutual agreement on facts' is sometimes agreed. Under this agreement, the taxpayer and tax office agree on certain facts to establish the basis for the application of the tax laws in a particular case. A precondition for such an agreement is that the facts remain unclear even after thorough investigation by the tax officers.

2.12 If the investigation concludes that taxes are overdue, what powers do the tax authorities have to collect them? Does this vary depending on the applicable tax?

In Germany, the tax authorities can enforce the collection of taxes themselves without the help of a court. This generally applies to all kinds of taxes.

Once taxes have fallen due (eg, after assessment or after the due date of self-assessed taxes), typically one or two payment reminders are sent to the taxpayer. Thereafter, the taxpayer soon receives a notice of upcoming enforcement. Subsequently, the tax authorities can seize bank accounts and take possession of any other assets, which are then realised in order to collect the outstanding taxes.

In practice, the enforced collection of taxes occurs within three to six weeks of the due date of taxes. This even applies for assets/accounts held in other EU countries. Enforced collection is slower and sometime impossible for assets held in countries outside the European Union.

2.13 On what grounds are penalties imposed and how are these calculated?

Generally, the following penalties may apply:

• Late filing penalty for the late filing of tax returns: Generally, 0.25% of the tax due per month; for most taxes, at least €25 per month.
• Late payment penalty: 1% of the tax per month not paid by the due date.

In tax evasion cases, a criminal punishment may be imposed in addition to the abovementioned tax penalties (eg, imprisonment, monetary fines).

2.14 On what grounds is interest levied and how is this calculated?

• Statutory interest on income tax, corporate tax, commercial tax and value added tax: The statutory interest (in case of tax payments) amounts to 1.8% per year (for interest periods starting from 1 January 2019).
• Interest for earlier periods and interest in special cases (eg, tax evasion cases): This amount to 6% per year.

2.15 What defences are typically available to the taxpayer?

The taxpayer will try to prove facts and provide respective documents or other evidence that are favourable to its case.

Also, legal arguments can be utilised. German tax law is often subject to interpretation and is not always applied by tax officers in accordance with the law. Good legal arguments can thus help win a tax case (especially if there are useful precedent cases available).

For assessment periods far in the past, the tax statute of limitations may apply, which may depend on whether the taxpayer has committed tax evasion.

2.16 Can the results of the tax investigation have criminal implications for the taxpayer? Does this vary depending on the individual taxpayer?

If the tax investigators find that a taxpayer has committed tax evasion, a reckless understatement of taxes or another criminal offence, an individual can be subject to:

• a criminal investigation; and
• potentially, a criminal or administrative fine (in severe cases, imprisonment without probation).

Criminal punishments always require that an individual have acted with criminal intent or recklessly.

Under German criminal law, only natural persons can commit a crime. However, an organisation (eg, a company or corporation) for which an individual acted will be liable for its own tax liabilities. In addition, organisations can be subject to:

• the confiscation of profits from criminal conduct (eg, from tax evasion); and
• administrative penalties (in addition to the acting individuals).

2.17 If the tax investigation has criminal implications for the taxpayer, are the answers to any of the above questions different?

We have highlighted potential criminal law impacts on the tax proceedings within our answers to the above questions (2.3, 2.7, 2.9, 2.12, 2.13).

3 Voluntary disclosure and amnesties

3.1 Are any voluntary disclosure or amnesty programmes applicable in your jurisdiction? Does this vary depending on the applicable tax?

Germany has a voluntary self-disclosure statute for:

• tax evasion (a criminal offence); and
• the administrative offence of reckless understatement of taxes.

Filing a valid voluntary self-disclosure has the advantage of relieving individuals from the respective criminal charges associated with tax evasion. It does not provide relief from underpaid taxes or interest/tax penalties.

An effective voluntary self-disclosure requires that all tax law violations of a type that are not time barred be corrected in full. This includes:

• the correction of incorrect information;
• the completion of incomplete information; and
• the completion of omitted information.

The voluntary disclosure must be such that it enables the tax office to:

• clarify the facts without lengthy investigations; and
• correctly assess the tax.

The minimum subsequent declaration period is 10 years – that is, all violations in the last 10 years must be reported. In case of severe tax evasion (eg, where the evaded income tax for one year exceeds €50,000), the declaration may have to encompass the last 15 years.

A voluntary self-disclosure is valid only if, following the assessment of taxes, the tax payment that arises is actually paid.

4 Forum for tax disputes

4.1 In what forum(s) are tax disputes heard in your jurisdiction? Is there any choice of forum available?

The first forum for a tax dispute is the tax office involved in the case. Typically, a tax dispute begins with an appeal against a tax assessment notice. The tax office first has the opportunity to accept and pursue the appeal.

If the tax office denies the appeal, the taxpayer can bring a claim before the responsible fiscal court. Decisions of the fiscal court are subject to legal review by the Federal Fiscal Court.

The forum is determined by statute. The taxpayer has no choice of forum.

4.2 Who is the fact finder in a tax dispute? Does this change based on venue?

Facts are determined in the appeal proceedings before the tax office responsible for the case.

If the case is brought before the fiscal court, the court will be responsible for fact finding.

At both stages, the principle of official investigation applies. However, evidence provided by the taxpayer must be considered.

At the legal review stage, the Federal Fiscal Court may not find additional facts. It is bound by the first-instance verdict in this regard.

5 Filing a tax dispute

5.1 What is the limitation period for filing a tax dispute in your jurisdiction?

Filing an appeal is possible within one month of (deemed) service of a respective tax assessment. The details are complex but typically lead to an appeal period that is slightly longer than one month from the date written on the assessment notice.

5.2 What are the formal requirements for filing a tax dispute?

An appeal must be filed in writing (including email) or declared orally at the tax office. It should:

• specify the administrative act against which the appeal is directed; and
• name the appellant if it is not recognisable from the context.

An appeal need not be substantiated in order to be valid.

5.3 What are the procedural and substantive requirements for filing a tax dispute?

An appeal must be filed before the filing deadline (see question 5.1) in the proper form (see question 5.2). It need not be substantiated; but without substantiation, the appeal is highly likely to be rejected.

5.4 Is there any possibility for collective proceedings (eg, involving several taxpayers or multiple tax assessments)?

Related cases/tax assessments can be combined in one appeal/court proceeding.

5.5 Must the sum in contention be paid into court before a tax dispute is filed?

Generally, the tax must be paid by the due date.

A taxpayer can file for the suspension of execution of tax with the tax office or the fiscal court. Suspension of execution is granted if the taxpayer can show that there is serious doubt about the legality of the tax assessment.

In this case, the tax need not be paid until:

• the appeal proceedings are concluded; or
• the suspension of execution is lifted.

5.6 Has the filing of a tax dispute any effect on the payment of tax or the collection possibilities for the authorities?

See question 5.5.

5.7 If the tax dispute is decided in favour of the authorities, is late interest due if the tax has not been settled? If the tax dispute is decided in favour of the taxpayer and the tax had already been settled, is interest due by the state?

Statutory interest applies:

• in favour of the taxpayer (if the tax was paid); or
• in favour of the tax authorities (if the tax was not paid).

6 Disclosure and privilege

6.1 What rules apply to disclosure in your jurisdiction? Do any exceptions apply?

Germany's procedural laws do not provide for disclosure proceedings as known in common law countries.

6.2 What rules on third-party disclosure apply in your jurisdiction?

Germany's procedural laws do not provide for disclosure proceedings as known in common law countries.

6.3 What rules on privilege apply in your jurisdiction?

Germany's procedural law does not apply the concept of legal privilege as known in common law countries.

However, communications between lawyers and their clients are protected to a certain degree.

7 Evidence

7.1 What types of evidence are permissible in tax disputes in your jurisdiction? Is expert evidence accepted?

The following evidence can be considered in tax proceedings:

• documents;
• witness statements (typically requested in information requests);
• information from public sources and files of other German authorities;
• examinations of items and locations; and
• expert evidence.

7.2 What is the applicable standard of proof?

The Fiscal Code does not provide for a statutory standard of proof. When assessing evidence, it is accepted that the general laws of reasoning and the recognised rules on the assessment of factual circumstances will apply.

In fiscal court proceedings, the principle of free evaluation of evidence applies – that is, it is up to the judges to evaluate whether evidence is sufficient to prove a certain fact.

7.3 On whom does the burden of proof rest?

• For facts required to establish the application of a tax statute and facts that would increase the tax, the burden of proof rests with the tax authorities.
• For facts that would reduce or exclude the tax, the burden of proof rests with the taxpayer.

8 Proceedings

8.1 Are tax proceedings in your jurisdiction public or private? If the former, are any options available to the parties to keep the proceedings or related information confidential?

Tax proceedings are generally private and not accessible to the public.

Hearings at the fiscal court are generally public. However, the public can be excluded on the application of the taxpayer without any preconditions.

8.2 How do the proceedings unfold in your jurisdiction?

Judicial tax proceedings are typically initiated by filing a lawsuit at the fiscal court against the decision of the tax authorities to reject an appeal.

The Fiscal Court Code allow for both written proceedings and proceedings which include at least one hearing before the judgment is handed down. The selection is made by the judge. The taxpayer has the right to request an oral hearing.

Proceedings typically unfold through the exchange of written statements in which:

• the taxpayer substantiates the claim; and
• the tax authorities defend their view.

Multiple rounds of written exchanges are not uncommon.

The court may request the parties to provide certain evidence or to further substantiate their positions.

In case of an oral hearing, witnesses (if any) are heard and the parties have the opportunity to advocate for their case.

After the hearing, the court will issue its verdict.

8.3 What is the typical timeframe for proceedings?

German tax court proceedings may take between six months and two years, and sometimes even longer.

8.4 Are settlements possible between the taxpayer and the tax authorities once judicial proceedings have been opened?

The tax authorities can amend the relevant tax notice at any stage of the proceedings in accordance with the application of the taxpayer. This typically leads to the closing of the proceedings.

On the other hand, the taxpayer can withdraw its claim to end the proceedings without judgment.

In practice, settlement discussions with the tax authorities during or in relation to fiscal court proceedings are not uncommon. Although the tax authorities are legally bound to levy tax in accordance with the tax laws, taxpayers and tax authorities can align on which legal and factual positions of the taxpayer and which of the tax authorities are acceptable. Also, a mutual agreement on facts can be reached in order to bring the proceedings to an end.

8.5 Do the courts in your jurisdiction have full power to review facts and legal questions?

Yes.

9 Remedies

9.1 What remedies are available in tax disputes in your jurisdiction?

The following remedies are available to the court:

• amending the tax assessment in line with the tax laws;
• cancelling the tax assessment;
• instructing the tax authorities to amend the tax assessment in line with the tax laws as understood by the court; and
• ordering a particular action to be taken by the tax authorities.

9.2 What factors will the court consider in deciding on the appropriate remedies?

The court is bound by the reasoning of the claim brought by the taxpayer as understood by the court. A typical decision is the amendment of a tax assessment in line with the law.

10 Appeals

10.1 Can the decision of the court be appealed? If so, on what grounds and what is the process?

Revision (legal review) before the Federal Fiscal Court is available. The deadline is one month from service of the written verdict of the fiscal court.

If the fiscal court has not permitted a revision, a complaint against non-admittance of the revision must be filed with the Federal Fiscal Court as a first step. The revision must then be substantiated within two months of service of the first-instance verdict.

In most cases, the Federal Fiscal Court then issues its decision without an oral hearing. Only in exceptional cases will an oral hearing be ordered.

Thereafter, a verdict will be issued. The Federal Fiscal Court may issue a final decision or – if it considers that further investigations are required – refer the case back to the fiscal court for a final decision considering the views of the Federal Fiscal Court.

11 Costs, fees and funding

11.1 What costs and fees are incurred in tax disputes in your jurisdiction? Can the winning party recover its costs?

Appeal proceedings are free to file. However, taxpayers cannot recover their costs (eg, attorneys' fees).

Statutory court costs are payable for judicial proceedings, depending on the value of the claim.

If the taxpayer wins its claim, the court costs will be reimbursed. In such case, the taxpayer will be reimbursed for incurred attorneys' fees, but only up to the statutory amounts (which are lower than typical market rates).

If a case is taken to court, the taxpayer can also apply for its attorneys' fees in the previous appeal proceedings to be covered. Reimbursement can then be ordered by the court in complex cases.

The tax authorities always bear their own costs, even if they win their case.

11.2 Are contingency fees and similar arrangements permitted in your jurisdiction?

Contingency fees are generally not permitted but may be agreed in exceptional circumstances. One precondition is the client be otherwise excluded from asserting its rights.

11.3 Is third-party funding permitted in your jurisdiction?

Third-party funding is permitted in Germany.

12 International tax disputes

12.1 What is your jurisdiction's position on the resolution of international tax disputes (eg, advance pricing agreements, mutual agreement procedures, arbitrations)?

Germany has a wide tax treaty network. Some treaties include a mutual agreement proceedings clause, which can be used to apply for advance rulings.

At a national level, a binding advance ruling on the tax treatment of as-yet unrealised circumstances is possible.

12.2 Has your jurisdiction implemented the Organisation for Economic Co-operation and Development (OECD) minimum standards with respect to international tax dispute resolution or is it a party to other agreements in this respect?

Yes.

12.3 Does your jurisdiction's position differ significantly from Article 25 of the OECD Model Tax Convention (including commentary)? If so, in what respects?

No.

12.4 How do domestic and international tax dispute resolution mechanisms interplay in your jurisdiction?

There are no domestic tax dispute resolution proceedings that utilise arbitration.

The conflict rule on domestic and international advance rulings provides that in case of an international advance ruling, the prior (conflicting) German national ruling will be withdrawn (Section 89a, para 5 of the Fiscal Code).

13 Trends and predictions

13.1 How would you describe the current tax dispute landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

Germany has one of the most complex tax systems in the world, which changes frequently.

Generally, Germany seeks to implement OECD agreements, EU legislation and other international treaties into national tax law quickly.

No major tax reforms are currently expected in Germany.

14 Tips and traps

14.1 What would be your recommendations to parties facing a tax dispute in your jurisdiction and what potential pitfalls would you highlight?

Tax disputes in the course of taxation proceedings or during a tax review are a common occurrence in Germany. Normally, the taxpayer itself or its tax advisers can handle the respective requests of the tax authorities. However, as soon as a tax dispute becomes highly contentious or in cases involving allegations of tax evasion, specialised tax lawyers should be consulted.

Generally, it is advisable to be transparent about critical circumstances which could cause the tax treatment to become contentious at the time of filing the tax return (through a respective disclosure letter).

Companies should also implement a tax compliance system, as the mere existence of such a system often significantly improves their position in contentious cases.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.