The tax year in Germany is the calendar year.
Returns are filed for each calendar year and reflect the financial statements for the business year ending in that calendar year. Assessments are issued once the tax office has reviewed the return.
Returns are, in principle, due by 31 July of the following year. However, for tax returns prepared by a professional tax adviser, the deadline is extended to the last day of February of the subsequent year. Under certain conditions (e.g. known late-filers and those with a record of other irregularities), one can be asked to submit their returns before these extension dates, though not before 31 July.
For tax years 2019 and 2020 the deadline for filing tax returns have been extended due to the COVID-19-pandemic. For 2019 the deadline for filing tax returns prepared by a professional tax adviser has been extended by six months, for 2020 the general deadline as well as the one for tax advisers have each been extended by three months.
Monthly or quarterly returns for WHT from employee salaries, dividends, interest, royalties, and other payments, and for VAT must be submitted electronically. The same applies to the annual returns for corporation tax, trade tax, and VAT. There is also an electronic filing requirement for the financial statements supporting the return.
Payment of tax
Taxes are payable in quarterly instalments during the year, with a final settlement when the assessment is issued. The quarterly instalments are based on the estimated ultimate liability. Usually, this is the total tax due shown by the last assessment issued, as adjusted by any rate changes. The corporation tax instalments are due on the tenth day of March, June, September, and December. For trade tax, the due dates are the 15th day of February, May, August, and November. Failure to pay by the due date followed by a three-day period of grace leads to a penalty of 1% per month.
Corporation and trade tax assessments bear interest on the net amount payable after deduction of all credits and previous payments. The rate is 0.5% per month simple interest, and the period runs from 1 April of the second year following the year of assessment until the date set for payment. For tax years 2019 and 2020 the start of the interest period has been sifted by six (2019) respectively three (2020) months due to the extension of the deadline for filing tax returns for those years in the context of the COVID-19-pandemic.
The start of the interest period is independent of the actual date of assessment. It thus runs in retrospect on assessments issued later, for example following a tax audit. In the light of the long standing low-interest-period, the Federal Fiscal Court in a decision of 25 April 2018 expressed doubts with respect to the compatibility of the interest rate of 0.5% per month with constitutional law. Several cases with respect to this question are pending with the German Federal Constitutional Court.
Tax offices are able to issue binding rulings in respect of planned transactions, provided the taxpayer can show a particular interest in the tax consequences of the intended action. The fee varies between EUR 266 and EUR 120,721 depending upon the amount of tax involved (no fee is charged if the tax amount is less than EUR 10,000).
Advance pricing agreements (APAs)
A taxpayer can request the Central Tax Office to negotiate an APA on related-party transactions with a foreign tax authority on one's behalf. The vehicle is the mutual agreement procedure under the treaty, and the fee is a lump sum EUR 20,000 for each new agreement.
Tax audit process
Germany relies heavily on tax audits as a means of ensuring taxpayer discipline. Audits of small businesses are carried out on a random basis, although those for larger corporations and for the local subsidiaries of foreign groups tend to be regular. With some district variations, audits are usually conducted at four to five yearly intervals, though not always with equal intensity for the entire period since the auditors’ previous visit.
Statute of limitations
The statutory limitation period for the issue or correction of assessments is four years from the end of the year in which the return was filed. If no return was filed, the period runs from the end of the third year following the end of the year of assessment. The four-year period is extended to five in cases of taxpayer negligence and to ten in the event of evasion.
The statutory limitation period for the collection of tax debts is five years from the end of the year in which payment became due.
Topics of focus for the tax authorities
Tax office reviews of tax returns prior to issuing the assessment notice and payment demand are often rather superficial. Audits, though, are intense, being field reviews on site often lasting for several weeks or even months. Companies with an international focus can expect significant audit emphasis on all aspects of their dealings with their foreign business partners. If the company is a member of an international group, its most important audit component will usually be its transfer pricing on its dealings with foreign-related parties and the relevant documentation. It is emphasised that these two topics are separate fields, as documentation deficiencies can lead to unfavourable estimates on the taxpayer, even if the taxpayer is able to justify the taxpayer's group-company pricing in terms of overall result.