Limitation Periods for Tax Claims in Sweden and Germany

2.1 General

The limitation period of tax claims is regulated in the Act of Limitation etc. (1982:188), SPL (skattepreskriptionslagen). The aim of the act is to have uniform provisions for taxes, duties and excises.10 The act can be divided into four parts. The first part, which only comprises Section 1, SPL, contains provisions on the scope of the law. The second part comprises Sections 2–8, SPL, and includes provisions on ordinary limitation period and its extension. The third comprises Sections 9–11, SPL, and regulates the meaning and effect of the limitation. The fourth and last part, comprising Section 13, SPL, includes provisions on public action in cases of extension of limitation periods, and regulates time of application and the appropriate court.

Decisions under the tax procedure act are effective immediately, Ch. 68 sect. 1 of the tax procedure act (2011:1244), SFL (skatteförfarandelagen). A tax claim not paid in time can be referred to the Swedish Enforcement Authority (Kronofogdemyndigheten), Ch. 70 sect. 1, SFL, and to be debt recorded. The Swedish Enforcement Authority is a central authority responsible for, among other things, unpaid debts, e.g. tax claims, and whose operations are regulated in several laws. Regarding tax enforcement, the Swedish Enforcement Authority has two functions: to represent the creditor, that is, the state, and to be the executive authority and in this capacity process the matter objectively without undue advantage to the state. The Swedish Enforcement Authority has the right to enforce seizure as well as to sell the impounded property before the taxation decision has gained legal force. This conflict of interest has been criticised in the doctrine.11

If appealed, the taxpayer can be granted deferral to pay the tax by the Tax Agency and a respite by the Swedish Enforcement Authority when the tax has been debt recorded. At worst, the Tax Agency can apply to declare a debtor bankrupt while the Swedish Enforcement Authority has granted postponement of tax payment, unless the authorities communicate with each other, see the case Rousk v. Sweden.12 As a result of this finding, the Tax Agency and the Swedish Enforcement Authority have reviewed their routines to avoid a recurrence of such a situation and possibly can a change of law may be underway.13

The main rule is that a tax claim included in the tax account is statue-barred five years after the end of the calendar year in which it was subject to enforcement. There are a number of exceptions to the main rule, to the effect that a tax claim can be collected later. A rule of exception is that the limitation period for a tax claim that was not settled in amount until after the date it was due, for instance, because a ruling gained legal force, starts running from the end of the tax year in which the final decision was announced. This does not, however, apply to the amount that was not a recovery claim before.

2.2 Tax procedure and tax disputes

Since long, Sweden has been a unitary state and the administration is centrally structured but can be represented at regional and local levels. The Swedish administration differs from many other countries in the way there is an organisational and responsibility division between the government and the administration. Even though the administration in general reports to the government, it is not permitted for a minister in Sweden to meddle with a particular matter. The Swedish model relies on the authorities to be governed by law and not through political intervention in special cases. The independence of authorities is designed to guarantee rule of law and equal treatment regarding individual case handling.14 The Swedish Tax Agency is the only central authority represented at the local level through local tax offices. The idea of a central Tax Agency is to ensure a uniform and equal legal treatment and that resources are used more efficiently.15

Over the years, Swedish taxation has been simplified and rests, to a great extent, on the income statement delivered by employers and financial institutions.16 Income statements comprise details of income and taxable benefits, interest income and interest costs, for instance. Every year, the Tax Agency makes a decision on final taxes on the basis of the income statement, employers’ statements and any other information yielded by investigation and checks, Ch. 56 sect. 2 SFL. Individuals only have the calendar year as the tax year, while legal persons can have split financial years, Ch. 1 sects. 13 – 15, Income Tax Act (1999:1229), IL.

The taxpayer can change their taxation by requesting a reassessment, at the latest six years after the calendar year following the tax year, Ch. 66 sect. 7 SFL. Within the same period, the taxpayer can appeal the Tax Agency’s decision to the Administrative Court, Ch. 67 sect. 12 SFL. In case of appeal, the Tax Agency has a duty to make a mandatory reassessment before the matter is referred to the Administrative Court, Ch. 66 sect. 18 SFL. The reason for this is to relieve the courts of cases when the taxpayer and the Tax Agency have agreed on the matter after the appeal. In Sweden there are general courts17 and administrative courts, which are: The Administrative Court, the Administrative Court of Appeal and the Supreme Administrative Court. A case is processed in the Supreme Administrative Court if the court grants review permit, section 36 of the Administrative Court Procedure Act (1971:291), FPL (skatteprocesslagen), which requires that the case is of importance to the application of law, would set a precedent, or constitutes grounds for a review.

The Tax Agency may change taxation on its own initiative to the taxpayer’s advantage within six years of the end of the calendar year following the tax year, Ch. 66 sect. 19, SFL. Within two years of the end of the tax year, the Tax Agency may, however, determine taxation to the taxpayer’s disadvantage through reassessment, Ch. 66, sect. 21, SFL. The Tax Agency does not need to state any new circumstances to reassess previous tax decisions within this time period.18 The Agency may, in addition, change taxation through supplementary taxation to the taxpayer’s disadvantage within six years from the end of the calendar year following the tax year, Ch. 66 sect. 27, SFL. Among other things, this requires that the amount of tax is considerable and that the taxpayer has given incorrect or omitted information. Supplementary taxation therefore means that additional tax can be imposed a long time after the first tax ruling. The expression "incorrect information” or "omitted information” is defined in Ch. 49 sect.5, SFL, and in short means that the taxpayer has stated incorrect information or neglected to state the information required for correct taxation. Diverging views of what is or is not included in incorrect information or false statement are often the cause of dispute between the taxpayer and the Tax Agency.19

Swedish legislation does not formally allow agreements on tax payment since this would be contrary to the principles of legality and equal treatment.

A tax case is normally in writing, although oral negotiations are permitted in certain cases. According to Ch. 67 sect. 37, SFL, oral negotiation shall be carried out in cases of special charges, for example, tax penalties, if the taxpayer so requests. Since it is common that additional tax is imposed on the taxpayer in cases of taxation change, the taxpayer often has this right. According to the principle of investigation, the court is obliged to ensure that cases are properly investigated,20 but in practice the parties have the responsibility to carry on their own dispute processes.

The taxpayer does not need to pay any charges to the Tax Agency or the court for a tax case regardless of the outcome. Instead, the taxpayer may be reimbursed for legal assistance or agent if he/she wholly or partly wins the tax dispute or if the Tax Agency brings the case to court for reasons of precedent, Ch. 43, SFL.

Under Section 29, FPL, it is clear that reformatio in pejus is not permitted in Swedish law, that is, the administrative courts are prevented from deciding to the disadvantage of the taxpayer if the taxpayer has appealed a decision. The prohibition also applies when the Tax Agency is the plaintiff.

2.3 When does a tax claim arise?

There is no general answer to the question when a tax claim arises because it depends on type of taxation. A tax claim can be said to arise when the accounting period for the tax in question has expired, when the tax year for the taxable income has come to an end, or when the accounting period for the value added tax transaction has expired.21

2.4 Tax account and collection of tax claims

Every taxpayer has a tax account which in principle functions as a bank account. Taxes are entered continuously into the tax account. When the taxpayer pays into the account, the sum is credited to the taxpayer.22 Other cases which can be credited to the account is reduced tax through reassessment or appeal, excess value added tax and excise duty or deferment of tax payment. The tax account is balanced every month in which a transaction has been made. Deposits are credited to the account without any individual deduction from the different tax types in the tax account (settlement rule).

The Tax Agency shall refer unpaid claims to the Swedish Enforcement Authority for collection if the sum amounts to a certain size, Ch. 70 section 1, SFL.23 It is the account deficit that is subject to collection and not certain unpaid taxes or duties. This duty applies whether or not the tax is under reassessment or appeal, Ch. 68 sect. 1, SFL. The Tax Agency shall, however, withdraw a tax claim or duty if a period of respite has been granted or if the claim is reduced or removed, Ch. 70 sect. 2, SFL. Remaining tax claim is referred to the Swedish Enforcement Authority for collection measures in principle when the date for final tax has expired. If the tax claim wholly or partly was established by this measure before the limitation period started, this measure may be completed after the end of the limitation period, sect. 10, SPL.

Collection means that the Swedish Enforcement Authority may take measures to enforce payment for unpaid taxes and duties. The Swedish Enforcement Authority can choose the enforcement measure most appropriate and efficient for the state as well as the taxpayer. It means that the responsibility for the claim is transferred from the Tax Agency to the Swedish Enforcement Authority. If the Tax Agency has information of debtors’ situation that may have a bearing on the collection, the Agency must inform the Swedish Enforcement Authority of this when the application is made or as soon as possible, sect. 7 of the Debt Recovery Act (1993:1229). It means that the information about the taxpayer’s economic situation that has emerged during the Tax Agency’s procedures, for example request for respite, can be forwarded to the Swedish Enforcement Authority. Since the Swedish Enforcement Authority has no jurisdiction to negotiate on reduction of taxes for taxpayers, this duty must be considered unconditional.24 It is therefore of the utmost importance that the communication between the two authorities function properly so that the individual is not affected by improper treatment. The Tax Agency can request collection without notification of payment in special circumstances, such as if the Tax Agency suspects that there is considerable risk that the tax debt will not be paid if procedures are slowed down.

2.5 Which taxes and charges fall under the Statute of Limitation for Tax Debts?

Section 1 of SPL provides that the Statute of Limitation encompasses taxes and claims that the state has the right to collect pursuant to the provisions in the law (1993:891) on collecting state claims etc., the so called debt recovery act. The Statute of Limitation applies in principle to all taxes, duties and public charges, except for the exceptions stated regarding water and environment legislation, study grants, legal aid and parking debts. This means that TV charges, for example, are under the same provisions as taxes.25 Collection in this context refers to the measures taken by the Swedish Enforcement Authority when taxes, duties and public charges are not paid in the prescribed order.

2.6 The meaning of limitation

When a tax claim has been statute-barred, no measures may be taken to collect the debt, section10, SPL. The prohibition against enforcement applies to call for payment, set-off, foreclosure and request for limitation request.26 In the legislative preamble, it is clear that the Swedish Enforcement Authority shall be responsible for considering the limitation provisions, which means that a debtor who pays a prescribed claim has the right to a refund if he/she acted in good faith, that is, did not know or should have known that the claim was time-barred.27

Ch. 63 sects. 8 – 9, SFL, provide that the Tax Agency may grant a respite against collateral and claim it when the period has elapsed. Even article 11 of the debt recovery act provides that the Swedish Enforcement Authority can request collateral in the form of deposit, suretyship or company mortgage. If two or more persons act as surety, it has to be bound in solidum. If the claim was established before the day of limitation, the measure can be continued after the end of the limitation period. If the Swedish Enforcement Authority, for instance, has made a foreclosure before the end of the limitation period the property can be sold afterwards.28 In the case of NJA 2000 p. 252, a tax claim was deemed to be established when the Swedish Enforcement Authority submitted a bankruptcy petition a short time before the expiration of the limitation period. On the basis of the submission, the company was declared bankrupt after the original limitation deadline.

Limitation does not restrict the state’s right to impound property in which the state has security for the claim, sect.12, SPL. This means that the Tax Agency as well as the Swedish Enforcement Authority may request deposit in connection with granting respite or extension of payment, Ch. 63 sect. 8, SFL, and sect. 11, act (1993:891) on collecting state claims, etc.29

Voluntary payment from a debtor for a statue-barred tax claim is not refunded, nor is an erroneous payment after a payment request. The legal situation is uncertain regarding so called ’ignorance of the law excuse,’ that is, when the taxpayer assumed there was obligation to pay or that the limitation period had expired.30

2.7 Normal limitation period

The principal rule for taxes beyond the tax account system is that the five-year limitation rule starts from the end of the calendar year when the tax was due for payment, Ch. 3 sect. 1, SPL. Examples of taxes beyond the tax account system are coupon tax, stamp duty, interests on forest account, custom duties, congestion charge, road tax and private import of cigarettes.

The normal limitation period for a tax claim imposed under the tax procedures act is five years after the end of the calendar year when it was submitted for collection, that is, when the tax was registered in the enforced sale register, Ch. 3 sect. 3, SPL. If such an enforcement ceases because of incorrect processing or respite granted, for example, the estimation of the limitation period also ceases for the amount falling within the scope of the withdrawal.31 If the Tax Agency has withdrawn a sum on the grounds of respite granted and a sum is still outstanding at the end of the limitation period, this can lead to a new tax account deficit to be collected. A new limitation period starts from the time of the submission of the remaining deficit in the tax account.

The current limitation period of five years is the result of balancing different interests.32 In the legislative proposition to the tax limitation period act, it is suggested that a shorter limitation period could lead to a stricter collection climate while a longer period than five years would not improve the collection result noticeably. The longer limitation period was considered to entail tangible pressure on the Swedish Enforcement Authority in terms of its registry and processing operations without any considerable monetary gain for the state. The Tax Agency’s investigations show that around 90 per cent of the claims were collected within the first three years, which is why the five-year limitation period would give the opportunity to collect the remaining 10 per cent.33 The current limitation period of five years has not been discussed to any great extent since its implementation, which suggests that it is considered to work well. Also the basic assumption of the tax limitation period linked to calendar year was viewed as a simplification since the calendar year is in many contexts a commonly used and understandable concept.34

The reason why the limitation period starts on the date of request for collection is that there is no separation of accounts in the tax account system and follow-up of how an individual tax is paid. The taxpayer has no right to claim that payment into the tax account is for a specific tax. The sum transferred from the Tax Agency to the Swedish Enforcement Authority for collection is not a special tax but rather a negative balance, that is, a deficit. Respite granted for tax payment means that the account is credited. If a collection procedure is withdrawn because of respite for payment, the limitation time stops running for the sum to which the respite applies. If a new collection procedure is called for due to account recharge of the tax for which the respite was granted, a new limitation period starts running.35

If the tax claim amount was not determined until after payment was due, the limitation period starts from the end of the calendar year when the decision was notified to the taxpayer, but only for the amount that was not collectable before, Ch.3 sect. 2, SPL, the so called rule of exception. The reason for the provision is that a claim might otherwise be statue-barred before collection enforcement could be carried out. The same applies if a tax claim amount is decided after the prescribed time for income statement or any other accounting has elapsed. The provision only pertains to the part of the tax claim that was not collectable before. In the case RÅ 2005 note 11, the Supreme Administrative Court decided that the rule of exception could be applied to claims relating to remaining and additional tax and that it could also be applied to situations when previously established claims are reviewed in a higher court. The rule of exception is, however, only applied to the part of the claim that was not collectable before the decision.

2.8 Deferral and respite

The Tax Agency’s and the Swedish Enforcement Authority’s activities in the area of deferral and respite are similar. Both can grant deferral of payment. The Swedish Enforcement Authority can grant deferral of payment for the deferred amount or enter into an agreement on instalments instead of taking immediate executive, sect. 6, SPL. The limitation period starts from the end of the calendar year when payment should have been made according to the agreement. The period of limitation can be extended to a maximum of ten years from the start of the normal limitation period. In practice, the Swedish Enforcement Authority does not allow such long extensions and therefore these rarely occur. Deferral means that the Tax Agency, on the taxpayer’s request, permits that payment is not made or that a certain collection procedure will not be carried out until a later date. A difference between deferral and respite is that deferral pertains to the debtor’s all debts, while respite is granted for a specific tax or charge. Another difference is that deferral is often conditional, for example, in the form of an instalment plan. Summing up, we can say that the terms of respite and deferral coincide to a great extent, but that they are applied by different authorities in different phases and therefore serve different purposes.36

If a claim has more than one final payment date, the claim should be viewed as being due for payment on the first of these dates, sect. 2, SPL. This means that an extension of payment due to respite or deferral does not involve any postponement of the date on which the limitation period starts.

If respite has been granted wholly or partly, the tax is statute-barred at the earliest two years after the end of the calendar year when the respite was granted, Ch. 4, SPL. The provisions apply to all types of respite with tax payments, including when the tax decision is reassessed or appealed for social reasons. The provision only gains practical relevance when the granted respite expires later than two years before the end of the limitation period. The second section of Ch. 4, SPL, makes clear that the provision does not pertain to claims imposed according to the tax procedures act. If a respite is granted wholly or partly for unpaid tax in the tax account system, the Swedish Enforcement Authority’s collection enforcement is revoked in corresponding degree. Ch. 3 sect. 3, SPL, states that the limitation period ceases to run. The special blocking regulation for respite cases is not needed for claims levied in accordance with the tax procedure act. In the case of respite, the respite amount is credited to the account, which may mean that the account can show a surplus. If so, there is no impediment to deducting the repayment against unpaid tax recorded in the arrears schedule.37

2.9 Extension of limitation period

In certain cases the court can decide to extend the limitation period, sect. 7 SPL. Extension of limitation period requires that the debtor meets one of the following criteria:

• has transferred, disposed of, or conveyed a private property right of access and that this can be assumed to have been done to thwart the state’s ability to get payment for the claim,

• has had no known residence and attempts to locate him/her have failed,

• has not been available at known residence in the country and is assumed to have evaded contact,

• has permanently resided abroad.

The last three requisites are expected to exist during the time the Swedish Enforcement Authority is responsible for the collection of the claim. The limitation period may not be extended if "special circumstances” prevent the extension of the limitation period.

If the debtor is a legal person, it is assumed that the legal person’s agent has had no known residence, evaded contact, or resided abroad. A further requisite is that the agent’s influence on or importance to the legal person’s operations can be assumed to have impacted on the state’s ability to get payment for the claim. If the administrative court – after giving the debtor the opportunity to make a statement – extends the limitation period, the time is extended to the end of the fifth calendar year when the limitation would have been enforced, according to the main rule. If it is in public interest, the limitation period may be extended with a further five-year period upon renewed request.38

Cases concerning extension of limitation time are processed by the administrative court on request by the Tax Agency. The request should be made before the claim is statute-barred. If the request was made in time, it means that the claim is not statute-barred while the case is processed and the administrative court, sect. 9, SPL. A request submitted in December before the new year in which the claim is statute-barred, shall be processed by the administrative court. Tax collection sabotage arises when the debtors have transferred, disposed of, or conveyed a private property right of access, Ch. 7 sect. 1 p. 1 SPL. It is also required that the debtor is assumed to have done this to impede the state’s ability to get paid for the claim. However, the Tax Agency has to prove such intention of the transaction. It is sufficient that convincing reasons indicate that the motive for the transaction was to impede the tax collection.39 However, case law shows that the Tax Agency has been quite restrictive in requesting extended limitation periods with reference to tax collection sabotage. Two explanations are possible. Firstly, the tax collection sabotage can be attacked by recovery in bankruptcy. Secondly, the Tax Agency must show that the purpose of the transaction was to avoid the payment.40

A limitation period may also be extended if the debtor has no known residence and it has proven impossible to ascertain his/her residence, Ch. 7 sect. 1, p. 2 SPL. Known residence means that the debtor either has had a registered permanent residence, or that he/she has lived permanently at another known address. The residence should have been long-term enough for the Swedish Enforcement Authority to collect the debt. If the debtor lacks a registered address and the Swedish Enforcement Authority has failed to get information of his/her residence, the debtor is considered to have no known residence. If the address was obtained after the Tax Agency requested extension of limitation period, the blocking regulation of "special circumstances” prevents an extension. The court has to decide if there is enough time before the statute-barring comes into force for further collection enforcement. The decision should include a consideration of the extent to which the collection has been aggravated by the fact that the debtor lacks a known address. If this is the case, an extension should be made, according to the legislative proposition.41 However, even if there is a possibility of using judicial assistance in the country in which the debtor is located, other circumstances can speak for an extension.42

The limitation period may also be extended if the debtor has not been available at the known address and no information about his/her whereabouts has been obtained, Ch. 7 sect. 1, p. 3 SPL. If, in addition, it can be assumed that the debtor has evaded contact there is a requisite for extending the limitation period. The circumstances that a person cannot be found at their residence or workplace and are impossible to locate indicate evasion.43

When the statute of limitation was implemented in Sweden, there were restricted possibilities to enforce tax collection from debtors living abroad. The number of judicial assistance agreements was lower than today. Often the agreements had different restrictions for the judicial assistance and only included certain types taxes and charges. In addition, it was not always possible to get judicial assistance if the debtors were citizens of their countries of residence. Other agreements required that the tax claim had come into force. Some of the restrictions remain in current agreements. The provision of judicial assistance has increased considerably since the beginning of the 1980s, especially in the EU.44

The reason that the Tax Agency has most often referred to in their requests for extension of limitation time is that debtors permanently live abroad. In the legislative proposition, a special circumstance cited as preventing extending limitation periods was that there has been a judicial assistance agreement enabling efficient collection in the residence country. In this context, Sweden’s entry into the EU and EU’s principles of mobility and prohibition of discrimination on the grounds of nationality are of importance.45

If warranted by public interest, the limitation period may upon a renewed request be extended for a further five years, Ch. 8 sect. 2, SPL. The requisites for a second extension is that it involves clear cases of sabotage and other situations of evasion where a debtor has significantly impeded the state’s ability to secure its claim.

A fundamental objective is that all debtors in principle can be subject to actual collection enforcement for a long time. If debtors travel abroad and stay there for a long time it could mean that the enforcement is impeded or delayed. Extension may only take place if no special circumstances speak against extension. Such a special circumstance can be that there is no judicial assistance agreement enabling efficient collection in the debtor’s country of residence.46 It is the debtor according to the Tax Agency who must state that there are special reasons against a extension of limitation period.47

A tax claim arises when the accounting period for the tax or charge in question has come to an end, that is, when the tax year for taxable event has elapsed. For taxes and charges stated in the income statement, the tax claim arises when the month for the taxable event has elapsed. A tax claim may be established through reassessment and additional taxation at the latest before the end of the sixth year after the tax year, which means that the starting date of the five-year limitation periods can be postponed. The limitation period is automatically extended in case of respite and the tax claim is statute-barred at the latest two years after the end of the year in which the respite ceased to be in force. The Tax Agency must request an extension of the limitation period from the administrative court, which means that the Tax Agency in addition has a creditor function. If the request for extension is submitted in time, the tax claim is statute-barred at the earliest when a rejection has gained legal force. The Swedish Enforcement Authority may take executive measures even when the case is still unresolved.48

3.1 General

In Germany, the tax procedures are concentrated in one separate law, the "Abgabenordnung”. This law includes amongst other general rules regarding the creation of tax claims, the conducting of tax proceedings, the determination and the assessment of taxes, the execution of tax claims, the extrajudicial remedy proceedings (i.e. extrajudicial review), the fiscal violation proceedings, and the criminal prosecution of tax offences.49 The Abgabenordnung (AO) contains also separate statutory limitation rules for the different phases of the tax proceedings which are integrated in the respective sections of the AO. In detail, the AO contains the following statutory limitation rules:

• statutory limitation of the assessment of taxes (§§ 169 f. AO),

• statutory limitation of the uniform and separate determination of taxable profits/losses (§ 181 AO),

• prescription of tax payments (§§ 228 – 232 AO).

However, the limitation of tax offences is stipulated in the German criminal code50 and not in the AO.

In special cases in which several persons have a share in a tax base, e.g. in the profits or losses of a partnership, the determination of the profits or losses take place in particular tax proceedings as not only the taxable profit or loss for the whole entity, resp. partnership, is determined but also the share of the taxable profits or losses for each partner of this partnership. Both, the whole taxable profit or loss of the partnership and all shares of that taxable profit or loss for each partner, are ascertained together (so called uniform and separate determination of taxable profits/losses according to § 181 AO). In principle, the periods of limitation of these kinds of uniform and separate determination of taxable profits/losses correspond to the general statutory limitation rules of the assessment of taxes.51

In contrast to Sweden, the German tax authorities are responsible for the collection of their own tax claims themselves. In Germany, there does not exist any central authority for the collection of all taxes, charges, and fees. Also a transfer of due and not paid tax claims to any other authority is not intended. For example, the local authorities are responsible for the collection of the trade tax and the local property tax attributable to them.52 Despite this, the local authorities are free to hire a private or a public person in order to collect their tax claims. In the case that a private or public person is hired for collecting outstanding taxes it has to be emphasized that the local authority which is in charge of the release of the tax assessment notes is also still reliable for keeping the tax secrets. Therefore the local authority has to ensure that only the information which is necessary for the collection of the taxes is passed to the hired person.

3.2 Tax procedures and tax disputes

The German tax administration is greatly affected by the fact that Germany is a federal state. The tax administration is therefore not as cohesive as the Swedish one. The German tax administration is represented on three different levels instead of one; Federal (Bundesbehörden), art. 108, GG, state (Landesbehörden), 108 sect. 2 and 3 GG and municipal level (Gemeinden), art. 108 sect. 4 GG. In Germany, the competences regarding the legislation, the participation in the tax receipts and the administration of taxes are distributed differently depending on the kind of taxes. For the most important taxes of businesses, esp. the corporation tax, the income tax (on income from business enterprises), the trade tax and the sales tax (i.e. VAT), the exclusive legislation competence rests in the end on the federal level (meaning the Federal Republic of Germany).53 In contrast to this, both the federal level and the federal states participate in the tax receipts from these taxes. In the particular case of the income tax also the municipalities have a share in the receipts from the income taxes.54 For all administrative issues linked with these taxes the individual federal states are exclusively responsible55 and operate for this task regionally responsible tax offices.

Only for the trade tax as a municipal income tax for businesses, there is a division of the administrative competences between the federal states and the local authorities. The federal states, resp. the tax offices operated by these states, are responsible for the determination and the ascertainment of the tax bases. The local authorities are responsible for the assessment of the trade tax and for its collection.56

The income tax, the corporation tax, and the tax assessment notice for the trade tax57 are assessed on the basis of the tax declarations prepared by the taxpayers. In contrast, a separate tax assessment is not necessary for the sales tax (so called taxes payable by operation of law). If the tax return of a taxpayer leads to a sales tax payable to the tax office and the tax office does not deviate from the tax declaration, the tax declaration has automatically the quality of a tax assessment.58

The AO stipulates statutory periods for the assessment of taxes by tax assessment notes issued by the tax offices. The assessment period for the income tax, corporation tax and the trade tax starts regularly on the passing of the calendar year during which the taxpayer submits its tax declaration to the tax office, and amounts normally to 4 years.59 The regulations in §§ 170 and 171 AO include quite a remarkable number of exceptions which cause an extension of the assessment period. For example, the start of a field audit immediately before the end of the assessment period is sufficient that the assessment period does not expire for the taxes that are subject of the field audit. The assessment period for these taxes runs until the tax assessment notes which are issued on the results of the field audit have become incontestable.60

The tax offices have to change the tax assessment notes during their assessment periods if facts and pieces of evidence come out later which induce a higher tax amount.61 Also the taxpayer can present facts and pieces of evidence which have be come out later but within the assessment period of the respective taxes to the tax office. But a change of the tax assessment note in favour of the taxpayer is only possible if the taxpaxer is not grossly negligent for the belated coming out of the facts and the pieces of evidence.62

If the period for the assessment of taxes has been expired issuing a tax assessment note or the annulment, change, or correction of a previous tax assessment note is impossible.63 In substance, the fulfilment of the limitation of tax assessment results in the extinction of any claims from the government-taxpayer relationship64 and has to be noticed ex officio.65 The extensive rules regarding the limitation of tax assessments in the AO pursue the purpose that after granting the tax offices a sufficient period of time for the assessment of tax claims and liabilities the relationships regarding tax claims and liabilities resulting from tax matters realised in the past are settled finally. Insofar, the rules regarding the limitation of tax assessments concede a higher priority to the legal security and the legal peace than to the correct tax assessment.66

Within a period of one month, the taxpayer can request the tax office for an extrajudicial review of the tax assessment note, regardless if it is a first time or a changed tax assessment. The administrative proceedings reviewing an objection to the tax assessment serves the purpose that the tax administration reviews internally its decisions. This extrajudicial review proceedings are finished either by a decision about the extrajudicial review, or a remedy tax assessment note, or a withdrawal of the review request by the taxpayer. In the extrajudicial review the tax assessment note is reviewed completely and not limited on the objection presented by the taxpayer. The extrajudicial review could be viewed as an extended assessment proceedings.67 Therefore, the complete review of the tax assessment note can also lead on the whole to an unfavourable change of the tax assessment note which the taxpayer has been requested to review ("reformatio in pejus").68 Despite this, the taxpayer can avoid this reformatio in pejus by a withdrawal of his/her objection.69

Just as the Swedish also the German tax law does not allow agreements between the tax authorities and the taxpayers by contracts, settlements, or other agreements. Those kinds of agreements contradict the legality and the equal treatment of taxation.70 Nonetheless, due to the court rulings of the Supreme German Tax Court (BFH) it is possible that tax authorities and taxpayers can reach an agreement binding both parties if the tax matters or their circumstances are in fact difficult to determine.71 Such an factual agreement is possible within all phases of the tax ascertainment and assessment process. Nevertheless such an factual agreement is restricted on the determination of facts and matters and is not allowed for settling of questions of law or legal consequences.72

If the objection to the tax assessment note is not resolved by the extrajudicial review proceedings, the taxpayer can file a suit at the regionally responsible finance court (i.e. the finance court in which area the tax office is located) within a time-limit of one month after the notification of the tax authority about the result of the extrajudicial review.73 In the particular case of an extrajudicial review proceedings against a trade tax note (e.g. application of a false municipality-specific fee on the trading profit) the administration courts have to be appealed.74

3.3 When does a tax claim arise?

In general, claims resulting from the government-taxpayer relationship, especially the tax claims, are created at that point in time at which the facts are realised which are constitutive according to the respective tax law.75 Therefore, the abstract tax claim is created without any assessment. Notwithstanding this, for their realisation the abstract tax claims need to be substantiated by issuing tax assessment notes.76

The point in time at which the different taxes are created is settled by the respective tax laws. The assessed income tax, the corporate tax and the trade tax are arising on the passing of the relevant tax period (i.e. the calendar year).77 In contrast to this, the sales tax is created on the passing of the period for the advance return for sales tax. In dependence of the amount of the sales tax for the previous year the sales tax arises on the passing of the respective month, quarter or calender year.

3.4 Tax account and collection of tax claims

The collection of the tax claims are carried out by the tax authorities and starts with the maturity date of the assessed taxes. The maturity dates of the assessed taxes are also laid down by the respective tax laws.78 If the taxpayer has to make a final payment due to the assessment of the income tax, corporation tax or trade tax this final payment will be due one month after the notification of the underlying tax assessment note.79

In contrast to Sweden, in Germany there does not exist a central tax account which adds up all tax claims, offsets all payments received from the taxpayer, and summarises both, the due claims and payments made at a specified point in time in an end balance. In Germany, the tax account shows all debit entries from the single due tax claims and which individual payments have been made on each of the different tax claims. In this way it could be recognised which single tax claims are not paid or only paid partly. If the taxpayer makes a voluntary payment on his/her due tax claims, but the payment is not sufficient to satisfy all due tax claims he/she has in principle the right to determine the order of the payment.80 If besides the tax claim also ancillary payments from the government-taxpayer relationship are owed, for example interests on due tax claims, a priority discharge of the (initial) tax claim avoids additional interests from due and unpaid tax claims.

The tax authorities, especially the tax offices, are responsible for the collection of the tax claims and also have the function to enforce the tax claims. The last-mentioned task implies that the tax offices can enforce the assessed and due taxes through the administrative channels.81 In the event of a non-payment of due tax claims a report of the overdue tax claims is automatically generated to the tax office collecting these claims. The enforcement departments of the tax offices check the general prerequisites for an enforcement of the overdue tax claims and investigate the financial and the income circumstances of the taxpayer (or another enforcement debtor) in order to prepare the enforcement of the tax claims.82 Due to the rules of an equal tax treatment and tax collection83 the tax offices are in principle always obliged to carry out the necessary measures to enforce the payment of the claims.84 On the other hand, the enforcement should not be tried if it is assumed that the enforcement will not be sucessful or the cost of the enforcement will be unreasonably high in relation to the amount that could be expected to collect. In these cases, the overdue tax claims should be cancelled.85 The cancellation of (overdue) tax claims is a decision of the responsible tax office not to enforce either temporary (cancellation with supervision of the prescription of tax payments if the satisfaction of the tax claims is assumed as being possible in the future, e.g. by expected future income from inheritances) or finally (cancellation without any supervision of the prescription of tax payments if the probability of satisfying the tax claims is assumed to be extremely low) the payment of the overdue tax claims.86 However, the cancellation of tax claims is not an administrative act notified to the taxpayer.87 Therefore the tax office does not waive its claims against the taxpayer.

3.5 Which taxes and charges fall under Abgabenordnung?

The German AO applies for all taxes which are laid down by the federal law or the law of the European Union if those taxes are administrated by the (German) federal revenue or tax administration or the tax administration of the federal states (including the tax offices).88 Most of the excise duties, for example on energy products, electricity, tobacco products, tax on spirits, on sparkling wines or on alcopops, or the motor vehicle tax belong to the taxes administrated by the federal revenue or tax administration. The customs code of the European Union has to be applied to the customs duties with priority. Nevertheless, the enforcement regulations of the AO are also applicable to the customs duties on a subsidiary basis.

In addition, the regulations of the AO are applied to ancillary payments from the government-taxpayer relationship, such as interests, surcharges on overdue payments, or enforcement fines or other administrative fines.89

Moreover, main parts of the AO, such as the tax assessment, are regulated in the fourth part of the AO "conducting of the taxation proceedings”, or the regulations regarding the maturity of tax claims or the prescription of tax payments mentioned below90 that are contents of the fifth part of the AO "the tax collection procedures” are also applicable on the property tax and the trade tax which are both administrated by the local authorities.91

Furthermore, the AO is also applicable on government grants by virtue of explicit regulations in the respective laws. As examples are given the premiums for financing the construction of residential properties92 or some other kinds of premiums.93

In Germany, charges and fees are not covered by the AO.94 On the federal level, the Bundesgebührengesetz (BGebG, i.e. Federal Fees Act), is the main law which lays down the assessment and the collection of administrative fees, including the reimbursement of administrative expenses, on the federal level and refers to the Bundeshaushaltsordnung (BHO, i.e. Federal Budget Code). On the level of the federal states, the law governing the fees consists of the respective regional fees acts and the regional acts concerning the reimbursement of administrative expenses. Nevertheless, at least some of the provisions included in these laws of the federal states follow the corresponding provisions of the AO.

In Germany, broadcasting fees are assessed by the regional responsible federal broadcasting institution on the basis of the underlying interstate treaty.95 The collection of the assessed broadcasting fees is carried out by a separate, but unincorporated institution shared by all broadcasters, the "ARD ZDF German-country radio service for fees”.96

3.6 The meaning of the statute of limitation

The provisions regarding the prescription of tax payments are based on the assessment of the tax claims. The tax claims from the government-taxpayer relationship including the therewith linked interest claims expire if the tax claims have been statue-barred.97

The prescription of tax payments differs fundamentally from the corresponding statutory limitation regulations of the German civil law. According to § 214 sect. 1 BGB the debtor of a statue-barred claim has the right to refuse the performance of the claim. This means that the statutory limitation has only to be taken into account if the debtor presents that fact. In the opposite to that, the fact that a tax claim is statue-barred has to be taken into account ex officio.98 If the debtor has paid voluntarily a tax claim which has been statue-barred he/she can demand back the paid amount. Just as, the tax authorities are not allowed to offset their statue-barred tax claims against the non statue-barred claims of the taxpayers.99

3.7 Normal limitation period

Just as in Sweden, the period of prescription of tax payments is normally 5 years.100 The limitation period of tax payments starts on the passing of the calendar year in which the assessed tax claim has become mature.101

§§ 230 – 231 AO include some reasons which result in a significant extension of the normal limitation period of tax payments. § 231 sect. 1 AO contains the most important reasons. If one of the facts mentioned in § 231 sect. 1 AO are present the prescription of tax payments is interrupted.

Sufficient for an interruption of the prescription of tax payments is the assertion of the tax claim in writing by the tax authorities, especially by a reminder.102 The effect of an interruption of the prescription period of tax payments is that a new limitation period starts on the passage of the year in which one of the facts for an interruption happened.103 As a new full period of the prescription of tax payments of five years can be put into force by a simple reminder the tax authorities could avoid permanently the onset of the prescription of tax payments by the use of quite simple and cost-effective means.104

3.8 Deferral and respite

As already mentioned under section 3.7, there are a number of facts, which have the effect of interrupting the period of prescription of tax payments. In detail, these are the following:

• granting an extension of time for payment, granting a deferment of payment or a deferment of enforcement by the tax authorities, or granting a postponement of an enforcement,

• a bail,

• a measure of enforcement,

• register the tax claim in insolvency cases by the inclusion in an insolvency plan or in a debt settlement plan,

• determine the taxpayer’s domicile or residence by the tax authorities, or

• assertion of the tax claim in writing by the tax authorities.105

Just as in Sweden, the effect of granting an extension of time for payment or granting a deferment of payment is that the period of prescription is interrupted.106 The attendant consequence of this interruption is that after the end of the calendar year in which this interruption expired a new period of prescription of tax payments starts.107 If the extension of time for payment or the deferment of payment is granted only for a partial amount the period of prescription of tax payments is interrupted only for this partial amount.108

As already mentioned under section 3.7, there is no limitation of the overall period of prescription of tax payments. A new period of prescription can follow immediately on one or more previous periods of prescription of tax payments if due to one of the facts mentioned in § 231 sect. 1 AO the period of prescription has been interrupted.109 Therefore, the tax authorities could effectively avoid the onset of the prescription of tax payments. Nonetheless, it is up to the tax authorities to refrain from adopting measures according to § 231 sect. 1 AO and thereby to accept that the prescription of tax payments will occur. As the tax authorities have always to consider the general taxation principles, especially the principles of legality and equal treatment of taxation110, such failures of measures by the tax authorities will normally take place in a later phase of the tax collection process. Just as, if on the side of the tax authorities no serious efforts are undertaken in order to collect the due tax claims on the side of the taxpayer an expection of confidence that the tax claims will not be enforced may be created. In those quite extremely rare cases, a forfeiture of tax claims might have be occured.111

3.9 Extension of limitation period

As a difference to Sweden, German courts (tax or administrative courts) have no possibilities to extend the limitation period of tax payments. Due to the far-reaching possibilities of the tax authorities to postpone the limitation of tax claims this seems not to be really necessary.112

The reason mentioned in § 231 sect. 1 sent. 1 nr. 7 AO which results in an interruption of the period of prescription of tax payments is quite similar to those reasons which are according to Swedish law sufficient for an extension of the limitation period decided by the courts.113 The period of prescription of tax payments is interrupted if the German tax authorities start investigations regarding the taxpayer’s domicile or residence. Therefore, in principle the request regarding the taxpayer’s domicile or residence at the residents’ registration office filed by the tax offices result in an interruption of the limitation period. But the request at the residents’ registration office interrupts only in those cases the limitation period if the tax office has a special reason for that request, especially if the taxpayer’s domicile is unknown.114 However, only the fact that the taxpayer has its domicile or residence abroad, but known to the tax office is not sufficient to interrupt the limitation period.

Furthermore, the German tax law does not include the transfer of assets or property rights to thwart the state’s ability to get payment for the claim as a reason for an extension or interruption of the limitation period. Beside this, the tax offices can issue a writ of attachment in the movable and immovable property if there might be a fear that otherwise the collection of tax claims may be thwarted or may be significantly more difficult.115