09.02.2015Federal Tax Court rules on extension of tax audit period
The Federal Tax Court (BFH) has confirmed that the German tax authorities are allowed to extend the period of an ongoing tax audit if it is likely that there will be significant changes to the tax base in the years at issue.
Based on official guidance published by the tax authorities, a tax audit of a small and medium-sized enterprise generally should cover a three-year period. That period can be extended, however, to more than three years if it is likely that the audit may lead to additional taxes and/or changes to the tax base in other periods. Companies that qualify as “large” enterprises generally are continuously subject to tax audit so the three-year guidance is less relevant.
The case before the BFH involved a situation where a tax audit of a small/medium-sized enterprise led to increases of the income tax base of about EUR 30,000 per year as a result of the disallowance of the deduction of certain interest expenses. The tax auditor expected similar findings in other periods and extended the tax audit period from three to four years.
The BFH confirmed that the extension of the tax audit period was in line with the applicable guidelines. Although the increase of the tax base was comparably modest, there was no dispute as to whether the increase was “significant” enough.
The case illustrates the tax authorities’ latitude when executing their powers of discretion on whether to extend the period of a tax audit.
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