A tax assessment notice can be amended on account of estimates of additional income being attributed to the wrong tax assessment period. That was the verdict of the Finanzgericht (FG) Münster – the Fiscal Court of Münster – in a ruling from September 14, 2021 (ref.: 2 K 1155/19 G, F).
If a tax audit reveals income irregularities and it is suspected that the taxpayer provided incomplete information, the tax office can produce an estimate of additional profits. We at the commercial law firm MTR Rechtsanwälte note that while such an estimate must be realistic and not simply a stab in the dark, the ruling by the Finanzgericht Münster demonstrates that estimates of additional income being attributed to the wrong tax assessment period will not benefit the taxpayer.
In the instant case, a tax audit of a car dealer revealed unexplained cash deposits into the company account, and a subsequent cash transaction statement uncovered shortfalls. The tax authorities and the car dealer ultimately agreed on a total amount of 150,000 euros in estimated additional income, distributed evenly across the audit years 2008, 2009, and 2010, with the tax office subsequently issuing notices of assessment to effect this, including for trade tax.
The dealer lodged an objection against the assessment notices for 2009 and 2010, reasoning that the deficits identified for 2008 did not justify estimates of additional income for these years. This line of reasoning was followed by the tax office, which issued amendment notices to reflect this. What is now the definitive assessment notice for 2008 was amended by the tax office in accordance with Section 174(4) of the German Tax Code [Abgabenordnung, AO] in order to account for the total amount of 150,000 euros in estimated additional income for 2008.
The dealer’s legal action in opposition to this was ultimately unsuccessful. The FG Münster found that the prerequisites for the application of Section 174(4) AO had been met, i.e., in cases where a tax assessment notice has been amended to the benefit of the taxpayer due to an incorrect appraisal of a particular circumstance, the proper tax implications may subsequently be effected by issuing or amending a tax assessment notice. The Court noted that in this case the estimated additional income had been attributed to the wrong tax assessment period, as income generated in 2008 cannot be attributed to the following years. However, the total amount of estimated additional income had been correctly determined. The FG Münster held that the appeals against the tax assessment notices for 2009 and 2010 were only successful because the income had been attributed to the wrong tax assessment period and not because of the estimation method.
Lawyers with experience in the field of tax law can provide counsel.