Pitfalls for donors, donees and authorities
What aspects and what legal situation are there to consider when making gifts? A gift to one’s own child, a parent’s foundation to support daycare facilities or such a facility itself can be an interesting option for tax optimization.
In the case of gifts, no one is required to file a tax return until a request is made by the Internal Revenue Service. 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” from the relevant tax office.
Who with donations of real estates du insurances – already if thereby for the tax optimization life annuity, care or the like. If you want to avoid disputes with the tax office regarding their valuation, you should commission an expert to carry out the valuation in advance.
Gift tax liability in the case of a connecting factor abroad
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.
Tax assessments even after up to more than 30 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.
Revocation of gift in case of impoverishment for the maintenance of the donor
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.
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. Perhaps 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 or marketing, for example.
Legal consequences are then often rescission, reversal or liability for compensation. A self-disclosure often fails because the trustees abroad do 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.
Up to 90 % of taxpayers do not receive a tax assessment or receive an incorrect tax assessment.
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, estate conservators and executors 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 in illegal tax evasion
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.
Live tax-free in Germany for up to more than 50 years
A notary certifies the sale – that the trustee is relevantly known, he cannot know – presumably also not the clerk with the tax office for donations and inheritance taxes, similarly it goes with the case 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 tax his world income here in the country. The “creative consultant” from the bank or from the guild of consultants 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.
Tax Evasion Deluxe
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?
Gifts from parent initiatives, or sending to daycare facilities?
Those who are not related to each other, for example parent initiatives and day-care centres, can nevertheless make tax-free gifts to each other of up to 20,000 euros within 10 years. However, it must not be a circumvention transaction. However, there is the option for the daycare facility or a separate support association to be recognized as a non-profit organization, because then donations would often also be legally tax-deductible. An alternative is a foundation with legal capacity or a less expensive trust foundation. The law allows spouses to donate up to around 2 million euros in a tax-deductible manner.
More and more parents want to bequeath their assets specifically as a gift. In order to avoid a rude awakening afterwards, it makes sense to deal with the possible pitfalls in good time and to inform the tax office openly about the gift.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.wolterskluwer.de (published in Kita-Aktuell, 07/08-2013, pages 181 ff)
www.allgaeuer-bauernblatt.de (Issue 27 of 04.07.2013, pages 28 – 29 under the heading: Tax liability on gifts).
www.liechtenstein-journal.li (Liechtenstein-Journal 2/2013, page 48 – 51 under the heading: Tax liability on gifts – or tax evasion deluxe).
www.dtz-online.de (The Tobacco Newspaper No. 24 of 14.06.2013, page 9-11 under the headline: Tax liability on gifts – or tax evasion deluxe).
www.schlossallee-schwaben.de (published in Schlossallee 04/2013, pages 58-59 under the heading: Tax liability on gifts).
www.stbverband-berlin-bb.de (published in Verbandsnachrichten 03/2013, page 17-18 under the heading: Tax liability on gifts – or tax evasion deluxe)
www.der-bau-unternehmer.de (published in Der BauUnternehmer, issue 05/2013, page 7-8 under the headline: Tax liability for gifts – or tax evasion deluxe)
www.kommunalverlag.de (published in Municipal Economics 05/2013, pages 335 – 336 under the headline: tax liability on gifts – or tax evasion deluxe)
www.dzw-online.de (published in Die ZahnarztWoche, issue 20/13, under the headline: Tax liability for gifts – tax evasion deluxe – pitfalls for donors, donees and authorities)
issue 4, 2013)
www.handwerke.de (published in Computers in Crafts)
www.netcoo.com Issue 06/2013, pages 110 – 112
www.preussischer-anzeiger.de (published in Preußischer Anzeiger page 10 issue of 15.05.2013)
www.dzw-online.de (Die ZahnarztWoche, issue 17/14 under the headline: Incomplete self-disclosure and the consequences – or tax evasion deluxe)
http://www.network-karriere.com (July 2014 issue under the headline: Incomplete Self-Disclosure, Ill-Advised Without Remorse).
http://www.stbverband-berlin-bb.de (Association News 03/2014 under the heading: Incomplete Self-Disclosure, Ill-Advised Without Remorse).
www.experten.de (published in ExpertenReport 02/2016, page 74 – 77)
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About the author
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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