Pitfalls for donors, donees and authorities

In the case of gifts, no one is required to submit a tax return as long as no request has been made by the tax authorities. However, the donor and the acquirer are obliged to notify the tax office of the gift, § 30 of the German Inheritance Tax Act (Erbschaftsteuergesetz, ErbStG). Even if you are sure that no tax is due, you should obtain a “negative certificate” – i.e. a confirmation that no tax is due – from the relevant tax office. Who is particularly conscientious, and would like to reduce legally these taxes, should in particular with donation of real estates and insurance – already if thereby for the tax optimization life annuity, care or the like. Zusagen are reserved – an expert with the evaluation assign.

Domestic connecting factor

In most cases, the tax savings through the involvement of advisors are many times higher than the costs, and not only when it comes to legal tax avoidance through arrangements within the family. Alternatively, German gift tax requires that the donor or the donee or the object of the gift (usually real estate) is located in Germany. Also maintenance paid in advance, as well as a maintenance compensation before marriage for the case of later divorce will be to be treated mostly as donation, because then (temporally) evenly still no due requirement for such maintenance is present. The donor and donee are liable for any taxes due. A tax clause in the gift contract will noticeably reduce the tax burden.

Tax assessment still after years

If notice of the gift is given, a four-year statute of limitations begins to run at the following year’s end. If the tax office does not learn of the gift, the statute of limitations does not begin until the end of the year in which the donor dies, and then lasts up to seven years. In practice, one can only advise the donee to keep the tax assessment for a correspondingly long time, because after destruction of files at the notary and/or the tax office, problems of proof could arise – and thus double assessment of gift tax.

Often there is a desire to give with warm hands. If, however, the donor later becomes impoverished, the donee will often be obliged to pay compensation for the value of the gift, for example a cash annuity as maintenance for the donor. Surprisingly, it can also happen that the social welfare office collects this claim for monetary payment – a return of the gift upon revocation due to impoverishment is not provided for in the law. In the case of gifts, including those subject to the reservation of further use of the property, maintenance arrangements are usually required. In addition, it is necessary to consider the multiple negative tax consequences, for example in the case of the reservation of usufruct. Such advice can hardly ever be expected from a notary.

Avoidance by insolvency trustee, creditor or insolvency administrator

Who tries to withdraw by donation the remainder of its fortune from the access of its creditors, makes itself in the doubt just as punishable, as those aids from in or foreign country which propagate for it arrangements over foundations, trusts and life insurances. In many cases, the choice of law is already unsuccessful, for example in order to effectively agree the so-called bankruptcy privilege in foreign law. If such camouflage constructions only lead to tax evasion, such arrangements are not even recognised in Germany – almost any arrangement of anticipated succession by way of a gift thus remains null and void from the outset. In many cases, domestic and foreign trustees are unaware of their personal liability for penalties and taxes until they face enforcement or execution. Even the usual contract offers from abroad or off the shelf usually prove to be highly uncertain from a legal point of view, because they are usually designed by experts in sales and marketing, for example. Legal consequences are then often rescission, reversal or liability for compensation. A voluntary declaration often fails because the trustee abroad does not even make the money available for the payment of taxes, for example.

Protection through binding information and liability cover

If you want to be sure when structuring legally difficult circumstances, you will have to ask your tax advisor to obtain binding information from the tax office. As a rule, the tax authorities can then only deviate from this in favour of the taxpayer. It will also be crucial for taxpayers to know whether they are receiving advice of alleged tax exemption from their adviser in writing, and whether there is sufficient insurance cover in the event of a legal error. Finally, at least 0.5% interest on evasion per month and, in the case of evasion amounts of more than 50,000 euros, an additional penalty surcharge of 5% on the tax debt may be incurred. Fines and other disadvantages which could result from “overly creative accounting” by the tax advisor would also be compensable.

Ignorance and mistrust of taxpayers

In large parts of the population there is a distrust of the authorities, so that just such advisers are highly in the course, who sell allegedly legal arrangements as alleged secret tips. For example, many a middle-class person reports that he already keeps his money in cash at home so that each beneficiary can simply take one of the envelopes filled with money and labelled by name after death – because otherwise tax would also be deducted from the hard-earned money. Many times millions are evaded – and for the good conscience a fraction of it is given to charitable purposes in all hypocrisy. Estate administrators, insolvency trustees, guardians, custodians of estates and executors of wills then have every effort to clear up such errors – in effect as officially appointed tax collectors, in order not to get into a tax liability in their own person.

Private banks and trustees as compliant helpers

For decades, tax authorities have maintained their own databases, in which officially known helpers in trickery, camouflage and deception can be found – for example, because hundreds of front companies use the same fax connection. Then bogus invoices for alleged consultations on the occasion of tax audits are usually recognized immediately. However, this knowledge of the tax offices from the field of income taxation has in many cases not yet found its way to the tax offices for real estate tax and gift tax. If land registry offices and notaries were also included in the usual reporting obligations, and for example a nationwide comparison with the “onshore leak databases of the tax auditors on the usual suspects”, the tax burden of normal income earners in this country could be reduced by an estimated amount of up to more than 50%.

Example from Chiemsee

A good client of a Cypriot bank bought a property with lakefront land. Of course, he uses a seemingly anonymous company as a buyer, which is represented by a trustee known worldwide (not only through offshore leaks). His house banks – also in Germany – have named more than 1000 lawyers and tax advisors in Germany and abroad, who have been renowned and experienced in the only apparently legal tax avoidance for decades.
A notary notarizes the sale – that the trustee is relevantly known, he cannot know – presumably also not the clerk at the tax office for donation and inheritance taxes. Similarly the case goes with the land registry office, so that also no municipality is informed to look once who lives in the real estate and would have to pay taxes on his world income here in the country. The “creative advisor” from the bank or from the advisors’ guild had of course advised against registering properly with the municipality – not even as caretaker and guardian of the vehicle fleet for the usually absent landlord from abroad. Living tax-free in Germany for up to more than 50 years is thus completely problem-free – until the discovery. Nor should one expect the Federal Financial Supervisory Authority to pay any attention to such things, for after all it is an institution set up to protect financial houses from their own demise.

Tax evasion de luxe

Now there is the political opinion that such tax problems “must first be solved internationally”, and that it is necessary to abolish the voluntary declaration or to increase the penalties. These arguments appear to be smokescreens, since it would simply be necessary to systematically compile such data that are officially known and/or publicly accessible. The “usual suspects” are mostly found by evaluating the indictments of bankers and “advisors” to the US tax authorities, their CVs and the cadre schools they boast of attending. This doesn’t even require “slap-hat” training in intelligence.

Don’t pay gift tax?

If it were true that there was mass tax evasion without sustained efficient control by the state, then the question of tax justice would be touched. Not individual cases in certain federal states, but the de facto unequal treatment would be understood as an invitation to have the inheritance and gift tax put to the test (once again) at the Federal Constitutional Court “because of a structural enforcement deficit or unconstitutional taxation error”. Freely after the motto: Why should actually the tax honest be the stupid one?

by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm

by courtesy of


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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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