Compliance for the tax audit in Germany

What do the accounting and recording obligations cover? 

Basically, a distinction is made between the accounting obligation under commercial law and the accounting obligation under tax law. Every merchant within the meaning of the HGB (German commercial Act) who has to prepare a commercial balance sheet is subject to the accounting obligation under commercial law. The same applies to tax law. In addition, there are so-called sector-related record-keeping obligations. In principle, traders are obliged to keep accounts if their turnover exceeds EUR 600,000 in a calendar year or if their profit from commercial operations exceeds EUR 60,000 in a business year. Bookkeeping must be organised in such a way that an expert third party can obtain an overview of the business transactions and the situation of the enterprise within a reasonable period of time. The business transactions must be traceable since their occurrence. An expert third party can be a company auditor. In concrete terms, this means that all business transactions must be traceable both on the basis of the documents and on the basis of the book entries.

When is proper bookkeeping given? 

The bookkeeping must be complete, correct, clear and concise, which means that the entries must be made on the basis of a defined chart of accounts. The vouchers should be complete and correct. This also means that they must be kept in accordance with the legal deadlines. The valuation of assets and liabilities must be based on the Commercial Code or the Income Tax Act. 

What retention periods apply to the accounting documents? 

A basic distinction must be made between a 6-year and a 10-year retention period. 

The 10-year retention period applies to, among other things: 

  • Commercial books and records, 
  • inventories, 
  • annual financial statements consisting of the balance sheet and the profit and loss account, 
  • management reports, 
  • opening balance sheet, 
  • all organizational documents and working papers necessary for understanding accounting, 
  • all accounting vouchers, 
  • vouchers of relevance under customs law, 
  • all other documents that are of significance for taxation. 

Subject to the 6-year retention obligation are, among others: 

Copies of commercial letters and business letters sent and received.

The retention period begins at the end of the respective calendar year in which changes were made or new documents were created. If the documents are necessary, e.g. for tax purposes, and their assessment period has not yet expired, the periods may be extended.

Tax audit and access rights of the German tax authorities

In principle, in the course of a tax audit, the tax authorities have the right to obtain from the taxpayer in various ways the data necessary to conduct the tax audit. However, the requirements must be proportionate, i.e. merely referring to the principles of proper accounting is not sufficient. 

The tax authorities must not interfere disproportionately with the rights of the taxpayer during an audit. A request by the tax audit to provide data on a data carrier without specifying this in terms of location and time is not sufficient. Furthermore, it must also be clear how long the data will be stored by the tax auditor.

The data must be made available to the tax auditor on request on a machine-processable data carrier for evaluation. The tax authorities then use their own programs to evaluate the data.

All data, whether stored electronically or in paper form, must be readable. This may be difficult with receipts on thermal or fax paper.

The documents must always be kept in Germany, and it must be possible to present them to the tax office within a reasonable period of time. If the accounts are prepared abroad, an application is required in most cases. In justified exceptional cases, the tax office may even demand the return of electronic books and other accounting-relevant documents to Germany. 

Special features of electronically created and transmitted documents  

Electronic documents and data records, as well as other documents received by the company in electronic form, must be preserved in electronic form. Furthermore, they must be preserved unchanged.

For example, an invoice received by e-mail must be saved in PDF format, or scanned and stored as a paper document. 

Consequences of insufficient documentation or lack of cooperation during the tax audit

If the taxpayer only provides insufficient data, if there are formal or material deficiencies in the bookkeeping or if the taxpayer otherwise refuses to cooperate with the tax audit, the tax auditor can estimate the tax bases, which usually leads to high tax payments.

Penalty payments as well as delay fines in the amount of EUR 2,500 to EUR 250,000 are also possible to induce the taxpayer to cooperate.

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