Draft bill on reform of tax audit rules and implementation of DAC7 has been published by German Ministry of Finance in July 2022 Now, the official Draft Bill from the German Federal Government has been published as well

In brief

On 12 July 2022, the German Ministry of Finance has published a preliminary draft ministerial bill (Referentenentwurf, “Ministerial Bill“) that, inter alia, provides for a reform of the tax audit and bookkeeping rules in the German General Tax Code (Abgabenordnung) and the German Act on crossborder administrative cooperation within the EU (EU-Amtshilfegesetz) for tax audits.The draft has been resolved by the Federal Cabinett on 24 August 2022 and on 29 August 2022 the official Government’s Draft Bill (Regierungsentwurf, “Government Draft Bill“) has been published.

At this stage, the Draft Bill has not been passed by the legislative bodies yet, and is therefore still subject to further amendments.The Draft Bill was published as part of an overarching legislative package that also contains the draft bill for the implementation of the DAC7 Directive, so that a joint implementation is expected before the end of this year.

The declared aim of the reform is to modernize lengthy tax audit procedures and to clarify the set of obligations applicable to both the tax administration and the taxpayer, and also to improve the level of cooperation between taxpayer and tax administration. Rules on the acceleration of tax audits are certainly welcome. However, the Draft Bill also extends the cooperation obligations of the taxpayers and even provides for a new type of cooperation request that does not require any reasoning by the tax authorities and can result in severe monetary penalties in case taxpayers are not fulfilling the requests in time. The overall disappointing Draft Bill does not live up to the promise made in the relevant explanations to the effect that taxpayers and tax auditors are supposed to have equal obligations.

It is currently envisaged that the new rules on tax audits are to enter into force for taxation periods starting after 31 December 2024. 

Key takeaways

• The opening of a tax audit usually suspends the statutory limitation period. The Draft Bill now only allows a maximum suspension of five years. After the end of the five-year suspension, the assessment of taxes would become statute-barred.
• In addition to the general cooperation obligations incumbent on taxpayers in a tax audit, the Draft Bill provides for the possibility for tax auditors to issue a formal written qualified request for cooperation (qualifiziertes Mitwirkungsverlangen). Such qualified request for cooperation does not require reasoning, and unresponsiveness within a month can be sanctioned with a penalty of a maximum of EUR 10,000 (EUR 100 x a maximum of 100 days). This new type of penalty may be accompanied by a surcharge in the amount of a maximum of EUR 1,000,000 (maximum of EUR 10,000 x maximum of 100 days) for particularly unresponsive tax payers or for taxpayers with high turnover or taxpayers that are part of a big group that may not be threatened by the original penalty.

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