Gift tax / procedural law – Is it the notification of the gift to the tax office or the subsequent submission of the gift tax return that determines the start of the assessment period?

Gift tax / procedural law – Is it the notification of the gift to the tax office or the subsequent submission of the gift tax return that determines the start of the assessment period?

The disputed question is whether the notification of a gift received by the defendant in 2014 in accordance with Section 30 of the Inheritance Tax Act (ErbStG) or only the gift tax return requested and submitted in 2015 pursuant to Section 31 ErbStG brought about the end of the suspension of the commencement of the assessment period pursuant to Section 170 (2) sentence 1 no. 1 of the German Fiscal Code (AO). is now pending before the Federal Finance Court (BFH) for a decision (file number II R 1/23).

We are eager to hear the BFH’s ruling on this matter. The lower court considers the date of submission of the gift tax return to be the starting point of the assessment period. Tax advisor Hergen Kassuba explains that he is convinced by the reasoning behind the ruling of the Münster Finance Court, which dealt with the matter. This is because it corresponds to the current legal situation.

From the reasons (FG Münster, ruling of 24 November 2022 – 3 K 3384/20 Erb):

‘Irrespective of the question of whether the notification of a gift tax transaction made in 2014 was effective, the tax claim asserted with the issuance of the contested notice did not expire due to the statute of limitations on assessment because of the gift tax return requested and submitted in 2015.’

According to Section 47 of the German Fiscal Code (AO), claims arising from the tax liability expire, among other things, due to the statute of limitations (Sections 169 to 171, Sections 228 to 232 AO). A tax assessment and its revocation and amendment are no longer permissible once the assessment period has expired (Section 169 (1) sentence 1 AO).

The assessment period for gift tax is generally four years (Section 169(2) sentence 1 no. 2 AO). It generally begins at the end of the calendar year in which the tax arose (Section 170(1) Alt. 1 AO).

1. In the case of a gift inter vivos, gift tax is incurred at the time the gift is made (Section 9 (1) No. 2 ErbStG). In the case in dispute, the gift was made on 31 December 2014 with the payment of the purchase price due for the property to be acquired by the plaintiff’s limited liability company (GmbH) under the gift agreement, as it was only at this point in time that the gift conditions were fulfilled and the plaintiff was entitled, according to the notarised property purchase agreement of 20 August 2014, to have the GmbH entered as the owner in the land register.

The principle developed in the established case law of the Federal Fiscal Court (BFH), according to which the tax on a generous gift of land is already incurred when the contracting parties have made the necessary declarations in the required form for the registration of the change of title in the land register and the donee is in a position, on the basis of these declarations, to effect the registration of the change of title at the land registry office (BFH, judgements of 8 February 2000 II R 9/98, BFH/NV 2000, 1095; of 2 February 2005 II R 26/02, BFHE 208, 438; of 27 April 2005 II R 52/02, BFHE 210, 507) and the transfer of ownership ultimately takes place (BFH, judgement of 27 April 2005 II R 52/02, BFHE 210, 507), the following also applies to so-called ‘indirect property donations’ (cf. R E 9.1 (2) sentence 1 ErbStR 2019) if the object of the gift relates to a property that has already been developed (cf. Geck in: Kapp/Ebeling, ErbStG, § 9 Rz. 79.1).

2. According to § 170 (2) sentence 1 no. 1 AO, the assessment period begins when a tax return or tax declaration is to be submitted or a notification is to be made, contrary to § 170 (1) AO, not at the end of the calendar year in which the tax arose, but at the end of the calendar year in which the declaration, the registration or the notification is submitted or made, but no later than the end of the third calendar year following the calendar year in which the tax arose.

If the notification obligation pursuant to § 30 (1) or (2) ErbStG has been fulfilled and the tax office then requests the submission of a gift tax return pursuant to § 31 (1) ErbStG, the suspension of the limitation period pursuant to § 170 (2) sentence 1 no.

1 of the German Fiscal Code (AO) only ends at the end of the calendar year in which the tax return is submitted, but no later than at the end of the third calendar year following the year in which the tax arose (BFH, judgement of 27 August 2008 II R 36/06, BFHE 222, 83, confirmed by BFH, judgement of 17 April 2013 Il R 59/11, BFHE 240, 512).

The mere submission of the notification does not yet lead to a final termination of the suspension of the limitation period (BFH, judgment of 17 April 2013 Il R 59/11, BFHE 240, 512). According to this interpretation of Section 170(2) sentence 1 no. 1 AO, which the Senate concurs with, the suspension of the statute of limitations ended due to the filing of the tax return on 26 February 2015 at the end of 2015, so that the contested notice of 12 November 2019 was still issued within the four-year assessment period ending at the end of 2019.

Since the circumstances giving rise to the tax liability were already sufficiently specified in this tax return, the tax return requested again and submitted in 2019 is not relevant for the calculation of the limitation period for assessment.

1. a)According to the wording of Section 170(2) sentence 1 no. 1 of the German Fiscal Code (AO), the suspension of the limitation period is ended either by the submission of the tax return or tax declaration or by the refund of the notification.

This provision does not expressly regulate the question of whether a properly submitted notification within the meaning of § 30 (1) or (2) ErbStG definitively terminates the suspension of the limitation period or whether – if the tax office requests the submission of a gift tax return after the notification has been made – this legal consequence only occurs at the time when the tax return is submitted and the three-year period of suspension has not already expired. This question is to be answered in the latter sense (BFH, judgment of 27 August 2008 II R 36/06, BFHE 222, 83).

This interpretation does not contradict the explicit wording of the provision, so there are no constitutional concerns. According to the wording of Section 170(2) sentence 1 no. 1 AO, contrary to paragraph 1, the assessment period begins, among other things, when a tax return is to be submitted or a notification is to be made, at the end of the calendar year in which the tax return or notification is submitted.

The alternative ‘or’ connection between the two actions of the taxpayer leading to the end of the suspension of the limitation period does not imply any explicit requirement on the part of the legislator regarding the equality or subordination of the two actions.

1. b)Section 170(2) sentence 1 no. 1 AO is intended to prevent the processing time available to the tax authorities from being shortened (possibly deliberately) by late submission of the tax return, tax declaration or notification(BFH, judgments of 29 January 2003 I R 10/02, BFHE 20, 1; of 6 July 2005 II R 9/04, BFHE 210, 65; of 6 June 2007 II R 54/05, BFHE 217, 393).

Section 170(2) sentence 1 no. 1 AO links this security purpose – and thus the extension of the four-year period, which the legislator considers to be sufficient in principle – to the fulfilment of an obligation to act imposed on the taxpayer or his representative or the person obliged to act on his behalf (BFH, decision of 7 December 1999 II B 79/99, BFHE 190, 220). According to the wording of Section 170(2) sentence 1 no. 1 AO, this duty to act extends equally to the submission of a notification and – upon request by the tax office – to the submission of a tax return.

The Senate does not fail to recognise that the plaintiff should be credited with having intended to act in accordance with the law by reporting the gift and having done so.

He correctly points out that, according to the opinion represented here, even if the taxpayer makes the notification immediately within the three-month period specified in Section 30 ErbStG, a de facto suspension of up to seven years would be possible if the tax authorities only take action after three years and request the submission of tax returns.

In this case, the limitation period would be just as long as it would be if the catch-all provision (‘at the latest, however, at the end of the third calendar year following the calendar year in which the tax arose’) were applied in the event of a breach of duty to report. However, this result, which is only of limited general validity in the context of Section 170(5) No. 2 AO, is acceptable in view of the different purposes of the report on the one hand and the tax return on the other.

1. c)If, after the notification has been filed, the tax office requests the submission of a tax return in accordance with § 31 (1) ErbStG, a (further) suspension of the limitation period is justified due to the different purposes of the notification (§ 30 (1) and (2) ErbStG) on the one hand and the tax return (§ 31 ErbStG) on the other (BFH, judgment of 27 August 2008 II R 36/06, BFHE 222, 83).

In this case, it cannot be inferred from section 170(2) sentence 1 no. 1 AO that the obligation to submit a tax return is irrelevant with regard to the suspension of the limitation period.

1. aa)The reporting obligation is intended – solely – to ensure that all acquisitions are recorded as completely as possible and serves primarily to make it easier for the tax office to check whether and whom it must request to submit a tax return in individual cases. In contrast, the tax return must contain a list of the items belonging to the estate and other information necessary for determining the subject matter and value of the acquisition (Section 31(2) ErbStG) and is thus intended to enable the assessment of inheritance tax or gift tax (BFH, judgements of 16 October 1996 II R 43/96, BFHE 181, 351; of 10 November 2004 II R 1/03, BFHE 208, 33).
2. bb)These different purposes of the notification and the tax return must be taken into account when applying Section 170(2) sentence 1 no. 1 AO in such a way that, if the notification is duly submitted, only the information subsequently provided to the tax office by the submission of the requested tax return leads to the (final) termination of the suspension of the limitation period. According to the assessments of § 170 (2) sentence 1 no. 1 AO, the start of the assessment period is not justified simply because the tax office can already request the taxpayer to submit a tax return on the basis of the notification and can also enforce this request (e.g. by applying coercive measures, §§ 328 ff. AO) if necessary. The case law on the concept of knowledge within the meaning of section 170(5)(2) of the German Fiscal Code, according to which the tax authority can regularly assess gift tax on the basis of the notification alone – if necessary by way of estimation (section 162 of the German Fiscal Code) – or make use of the options provided for in section 165(1) sentences 1 and 4 of the German Fiscal Code (BFH, judgment of 6 June 2007 II R 54/05, BFHE 217, 393), cannot be transferred to the interpretation of § 170 (2) sentence 1 no. 1 AO (BFH, judgment of 27 August 2008 II R 36/06, BFHE 222, 83). This is contradicted by the wording of § 170 (2) sentence 1 no. 1 AO, which deviates from § 170 (5) no. 2 AO and expressly refers to the submission of a tax return.”