Term and Definition of “Tax”
The term “Tax” originates from the English-speaking world and is the equivalent of the German term “Steuer” (tax). In legal terminology—especially in the international context—”Tax” is used as a generic term for all government or public-law charges that do not require a specific consideration from the authorities. Thus, the term “Tax” encompasses all forms of taxes as recognized under German, European, and international tax law.
Legal Basis and Structure
Fundamental Tax Principles
Taxes, or “Taxes,” are monetary obligations imposed without any individually attributable consideration by a public-law entity (such as a state or corporation) to generate revenue. The most important principles for taxes are found in the German Fiscal Code (§ 3 AO). Similar principles apply under international law, particularly in jurisdictions such as the USA (Internal Revenue Code – IRC), the UK (Income Tax Act), or international double taxation treaties.
Distinction of “Tax” from Other Levies
“Tax” must be distinguished in law from other public charges, namely fees and contributions. While taxes or “Taxes” are levied for general budget financing without consideration, fees and contributions are imposed for specific or at least group-related benefits.
Tax Liability and Taxable Facts
The prerequisite for the emergence of a tax liability—and thus a tax liability—is always the fulfillment of a statutory taxable event. Taxes may be levied on various real-life circumstances, such as income (Income Tax), turnover (Value Added Tax, VAT), wealth (Wealth Tax), inheritances (Inheritance/Estate Tax), or certain transactions (Transaction Taxes).
Tax in the International Context
Fundamentals of Double Taxation Law
In international tax law, the term “Tax” is significant with regard to double taxation agreements (DTAs), which are international treaties aimed at avoiding multiple taxation of the same income or assets. Most DTAs are based on the OECD Model Tax Convention on Income and Capital and contain definitions of the term “Tax” or “Taxes covered”, regulating the substantive and personal scope of application.
Types of Taxes Worldwide
A wide variety of types of taxes have been established worldwide. The most common include:
- Income Tax (Einkommensteuer)
- Corporate Income Tax (Körperschaftsteuer)
- Value Added Tax, VAT/Sales Tax (Umsatzsteuer/Mehrwertsteuer)
- Wealth Tax (Vermögensteuer)
- Inheritance Tax, Gift Tax (Erbschaft- und Schenkungsteuer)
- Property Tax, Real Estate Tax (Grundsteuer)
- Transaction Taxes (e.g., stock exchange turnover tax) (Transaktionssteuern)
The collection, assessment, and enforcement of these Taxes are governed by national laws, supplemented by international regulations and information exchange agreements (such as the Common Reporting Standard – CRS).
Tax Collection Procedures
Tax Assessment and Tax Returns
The legally binding assessment of Taxes is generally carried out through tax assessment or self-assessment. The taxpayer files a tax return, based on which the competent authority (e.g., tax office, revenue service) examines the tax bases and sets the tax, unless it is calculated and paid directly by the taxpayer.
Tax Audits and Tax Disputes
Official audits (“Tax Audits”) may be conducted to verify the accuracy of declared tax bases. Tax-related disputes are handled before specialized tax courts, finance courts, or general administrative courts depending on the country. The available remedies and procedural rights are determined by national tax laws and international instruments, such as the Mutual Agreement Procedure (MAP) in international tax law.
Liability, Sanctions, and Enforcement
Tax Liability
Responsibility for payment of the assessed Tax generally lies with the taxpayer. However, some legal systems provide for third-party liability in certain cases, for example within the framework of withholding tax or the liability of managing directors and liquidators.
Sanctions
Failure to pay or incorrect declaration of Taxes may lead to fiscal and criminal sanctions. These include late payment interest, surcharges, fines, as well as criminal prosecution for tax evasion and tax reduction. The specific design depends on national law and, where applicable, supranational regulations.
Tax Refunds and Reimbursement Procedures
In cases where too much Tax has been paid, there is a right to reimbursement. The relevant procedures are detailed in the respective tax laws and are initiated by an application from the taxpayer.
Tax Avoidance, Tax Evasion, and Tax Fraud
Legality and Scope for Arrangements
The legal organization of facts to reduce tax liability (Tax Avoidance) is permitted within the framework of applicable law, whereas fraudulent actions against tax provisions (Tax Evasion) are punishable. The line between legally permitted tax behavior and disregard for tax law must be determined in individual cases based on national anti-abuse regulations (such as § 42 AO—abuse of legal arrangements) as well as international general anti-avoidance rules (GAAR).
International Measures Against Tax Avoidance
International initiatives such as the “OECD Initiative against Base Erosion and Profit Shifting” (BEPS) and the Common Reporting Standard (CRS) increase compliance requirements and enhance international information exchange to combat illegal tax practices.
Important Terms in Connection with “Tax”
- Tax Base: tax assessment base
- Tax Assessment: tax determination
- Tax Rate: tax rate
- Taxpayer: taxpayer
- Tax Authority: tax authority
- Withholding Tax: withholding tax
- Tax Relief: tax relief
Summary
The term “Tax” refers to the comprehensive system of government levies imposed on a statutory basis and which do not require direct consideration. This area of law encompasses numerous types of taxes regulated nationally and internationally. The collection, enforcement, and monitoring of Taxes are subject to detailed procedural rules and to partly complex international agreements and treaties. Legal issues relating to Tax affect both individual taxpayers and companies, especially in the international tax environment and considering increasingly strict compliance and transparency requirements.
This structured and in-depth presentation of the term “Tax” provides a comprehensive insight into the legal aspects of taxes worldwide, the essential terminological distinctions, the main procedures, and the latest international developments in tax law.
Frequently Asked Questions
How long must tax documents and records be retained?
The retention period for tax documents is essentially determined by the rules of the German Fiscal Code (AO) as well as relevant specialist laws such as the German Commercial Code (HGB). According to § 147 AO, commercial documents, including accounting records, invoices, balance sheets, and business books, must be retained for ten years. For received and sent commercial or business letters and other documents relevant for taxation, a minimum retention period of six years generally applies. These periods begin at the end of the calendar year in which the last entry was made in the documents or the documents were created. Taxpayers should note that an ongoing external audit or a pending tax procedure may result in an extension of the periods. The same applies if inquiries from the tax authorities regarding specific records are expected. Due to increasing digitalization, electronic archiving is permissible, provided that the principles of immutability and readability are observed, and the rules for proper keeping and storage of books, records, and documents in electronic form (GoBD) are complied with.
When does the entitlement to assessment and collection of taxes become time-barred?
The limitation period for tax entitlements is governed by §§ 169 to 171 AO. The standard limitation period for assessment is generally four years, starting at the end of the calendar year in which the tax arose. In case of negligent tax reduction, it is extended to five years, and in the case of intentional tax evasion, to ten years. In special cases, such as the conduct of a tax audit or the determination of tax bases, the limitation period may be suspended or restarted. For the collection and enforcement of tax claims, a limitation period of generally five years applies pursuant to § 228 AO, which may also be suspended by certain measures.
What legal obligations do taxpayers have regarding cooperation?
According to § 90 AO, taxpayers are subject to an extensive duty to cooperate with the tax authorities. They are obliged to provide all facts relevant for taxation completely and truthfully. This includes the timely filing of tax returns, submission of records upon request, and assistance during a tax audit. Particularly with cross-border matters, the duty to cooperate increases, since tax authorities generally cannot access information from abroad. If relevant documents are not provided, estimates by the tax office may follow, which could result in fiscal disadvantages. Violations of cooperation obligations may lead to penalties or further criminal and fiscal consequences.
What legal issues must be considered in connection with tax audits?
Tax audits (external audits) are carried out by the tax authorities on the basis of §§ 193 ff. AO to verify completeness and accuracy of information provided. Taxpayers are required by law to grant access to business premises and allow inspection of all relevant documents and books. The audit order must be in writing and the taxpayer must be notified at least two weeks in advance. Cooperation duties are particularly stringent during an audit; refusal or obstruction may be sanctioned with enforcement measures or estimations. Additionally, in certain cases there is a right to assistance by tax advisors or Rechtsanwalt. Audit findings may result in changes to existing tax assessments. Legal remedies against audit actions and results are available in accordance with the general provisions of the AO.
What are the legal consequences of filing the tax return late?
According to § 152 AO, the late filing of the tax return leads to the imposition of a late filing penalty, the amount of which depends on the degree of fault and the duration of the delay. Since the introduction of statutory filing deadlines, the late filing penalty is mandatory if the return is filed after 14 months (or, for advised taxpayers, after February 28 of the second following year). In addition, enforcement fines (§ 328 AO) may be imposed, and subsequently estimates (§ 162 AO) initiated if the taxpayer fails to fulfil their filing obligation. In serious cases, late or omitted submission may also result in criminal or administrative penalties, particularly in cases of suspected tax evasion.
What legal remedies are available against incorrect tax assessments?
Against incorrect tax assessments, the taxpayer may file an objection in administrative proceedings under § 347 AO. The objection must be submitted in writing to the competent tax office within one month after notification of the tax assessment. During the objection proceedings, the tax office reviews the contested notice comprehensively in both legal and factual respects (the so-called prohibition of reformatio in peius does not apply). If the objection is unsuccessful, legal recourse is available to the finance court (§ 40 FGO), whereby specific procedural rules and deadlines must be observed. Correction of obvious errors in a tax assessment may also be possible outside the objection process, e.g., by simple amendment under §§ 172 ff. AO or amendment due to manifest inaccuracy under § 129 AO.
What notification and declaration obligations apply to cross-border matters?
For cross-border matters, taxpayers are subject to increased notification and declaration obligations, in particular within their tax returns (e.g., annex AUS to the income tax return for foreign income). Under § 138 AO, there is a notification obligation for certain business relations or shareholdings abroad. Furthermore, with cross-border matters, taxpayers face increased evidentiary and cooperation requirements: under § 90, section 2 AO, they must provide all necessary information and evidence, as tax authorities cannot freely access foreign documents and information. Missing or late notifications may lead to significant fines or penalties. This is particularly important against the background of increasing international cooperation between tax authorities (e.g., through automatic exchange of information).
