Tax Audit – Additional Assessments by the Tax Office

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Additional Assessments Not Always Justified

Unclear or incomplete accounting records can lead to additional assessments by the tax office following a tax audit, necessitating back payments of taxes. Taxpayers should closely examine such additional assessments, as they may be excessive or unjustified.

In accounting, businesses must adhere to the principles of proper bookkeeping and storage of books, records, and documents in electronic form, as well as data access (GoBD). Violations of GoBD identified during a tax audit can lead to generous additional assessments by the tax office and significant tax back payments.

Limits to Additional Assessments

However, there are limits to these additional assessments. The Federal Fiscal Court has ruled that the results of a tax estimate must be plausible, economically feasible, and reasonable (Case No. X B 53/17). Taxpayers can contest excessively high additional assessments, advises the law firm MTR Legal.

This was evidenced in a verdict by the Lower Saxony Finance Court (Case No. 11 K 87/20). The plaintiff, a freelance service technician, used accounting software that did not comply with GoBD standards, as it allowed for invoices to be altered or deleted post-issuance. During an audit, the inspector found a duplicate invoice number and two missing sequentially numbered invoices. Additionally, the sale of a vehicle was improperly recorded. Consequently, the auditor imposed a security surcharge, which the technician contested.

Lower Saxony Finance Court: Insufficient Grounds for Additional Assessment

The technician argued that he, not his experienced office staff, had written the missing invoices and was not overly familiar with the software. The mistake was due to human error.

His lawsuit was successful at the Lower Saxony Finance Court. The court determined that the mere fact the software used for invoicing allowed the deletion or alteration of individual invoices without documentation was not a sufficient flaw in bookkeeping to justify an additional assessment by the tax office.

The formal shortcomings of the bookkeeping were not significant enough to cast doubt on the determined profit or sales. Thus, there was no basis for an estimate by the tax office, as per the Lower Saxony Finance Court. It was even questionable whether any formal defect existed.

The verdict demonstrates the value of contesting additional assessments.

MTR Legal attorneys assist with tax audits and other tax law matters.

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