The non-association of tax liability and civil law transactions in Germany
By Niels Webersinn, nbs partners
In Germany, there is a saying with regard to legal proceedings – on the high seas and in court, you are in God's hands. Despite all the efforts of the tax advisors and lawyers to pursue fundamentally promising paths with clients and to take realistic procedural steps in order to protect them from unnecessary adversity, the statement proves true time and again.
The German legal system basically provides for a strict and rigorous separation between tax law and other law.
Among other things, according to German procedural law in general, claims arising from the tax debt relationship are enforced without taking civil law circumstances into account. In this regard, there is a wide commentary in German procedural law, all of which basically negates any linkage between the two worlds.
Nevertheless, there are circumstances that force tax authorities and tax advisors to go before the tax court to obtain solutions in the interest of the tax debtor and the tax authorities.
In one example, a client in the field of cryptocurrencies had a not insignificant tax liability due to realised capital gains. However, the client was not able to realise these liabilities because he had transferred his holdings of cryptocurrencies to a trustee, which the trustee did not hand over, despite a ruling to the contrary by the Federal Court of Justice (Bundesgerichtshof) Germany’s highest civil court.
Since the civil enforcement proceedings against the trustee by the state authorities following the BGH ruling did not make any progress and the client's hands were tied as a result, the tax court had to find a solution balancing the demands of the tax authorities and the legitimate interests of the client in fair treatment by the state administration.
The appeal to the tax court was preceded by a mutual agreement procedure with the tax administration lasting several months, which largely followed the client's request for deferral of the claims on the premise that enforcement would take its course. Nevertheless, at some point the hands of the tax authorities were tied due to procedural laws. Both the tax advisor and the tax authorities, who were well-disposed towards the client, jointly decided that filing a lawsuit was the best way to resolve this tangled situation satisfactorily for all sides.
After the tax court was called upon, both the tax authorities and the client were asked to try to reach an agreement. The impression was that the tax court also wanted to avoid cutting the Gordian knot of time, legal hurdles of civil enforcement, and parallel tax proceedings. A judicially supervised mutual agreement procedure is now underway because the court does not want to decide, and once again the saying from the beginning of this article proves to be true: On the high seas and in court, you are in God's hands.
Niels WebersinnGGI member firm
Auditing & Accounting, Tax, Law Firm Services
T: +49 40 44 19 60 12
nbs partners is a multidisciplinary association of certified public accountants, lawyers and certified tax advisors, with a focus on the audit and advisory of small, mid-sized and large entities, as well as international groups and high-net-worth individuals.
Niels Webersinn is Director for international tax law, asset transfers and agricultural tax law at nbs partners in Hamburg. Niels Webersinn has lived in the USA and France for several years and is therefore familiar with the pitfalls of international tax regulations. He is married and has three kids.
Published: International Taxation Newsletter, No. 19, Autumn 2023 l Photo: iStock.com/MSchauer