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 to 2024, the deadlines for filing tax returns have been extended due to the COVID-19 pandemic.
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.
Please note that, under the special procedures for foreign taxable persons, certain VAT related reports and applications, such as the EC Sales List and VAT refund applications, must be submitted electronically as well.
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.
In principle, the interest period begins 15 months after the year-end for which taxes are levied. For the tax years 2020 through 2024, the interest period has been delayed by two to six months due to extended filing deadlines for tax returns as a result of the COVID 19 pandemic.
For periods from 1 January 2019 onwards, an interest rate of 0.15% per month (1.8% per year) applies, according to recent legislative changes. In the light of the enduring low-interest period, the German Constitutional Court declared the interest rate of 0.5% per month to be unconstitutional from 2014 onwards. Nevertheless, the 0.5% interest rate remains applicable for interest periods until 31 December 2018.
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 30,000 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.