The lawyers of Rudolph Rechtsanwälte represent clients in contentious tax cases before the tax office or the fiscal court.
1) Lawyers and tax advisers
In many cases – in particular where the design of complex voluntary self-disclosures with exemption from punishment is concerned – the relationship between the tax adviser and the tax lawyer can be compared with the relationship between a civil engineer and an architect. The tax adviser’s task corresponds to that of the structural engineer, that is to say he bears the decisive responsibility for the correct ascertainment and calculation of all the necessary figures. The tax lawyer, by contrast, is more comparable to the architect, that is to say it is his task to ensure that a coherent overall concept is designed which also fits into its surroundings. Creativity and imagination are called for in particular where legal argument on specific points of law is concerned. This is where the strengths of lawyers come into play, who in the course of their legal training were schooled in recognising problems and in discussing them argumentatively, taking the respective opposing positions into account.
There is, by contrast, no degree course in “tax advice”. A person becomes a tax adviser if he can demonstrate many years of experience in dealing with tax matters and in preparing balance sheets. In most cases it is graduates in business administration (Diplom-Kaufleute) or business economists who in this way surmount the first formal hurdle for admission to the tax adviser examination. The level of difficulty of this examination – just like the failure rate – is comparable to the state examination in law. The focus of the tax adviser papers lies in a confident command of the bases of tax calculation and of the everyday constellations which make it possible to ascertain the correct figures and to communicate them to the tax office.
In many areas of tax law, special qualifications on the part of a lawyer are called for. While tax advisers are as a rule particularly qualified for the preparation of balance sheets and annual financial statements or in matters of tax structuring, objections against a tax assessment notice or actions before the fiscal court often turn on specific legal questions. Here the lawyer’s work comes to the fore.
In doing so, a specialist lawyer for tax law will work closely with the tax adviser or the auditor in order to achieve the best results for the client.
In departure from the rules that apply in other branches of the court system, tax advisers may appear before the fiscal courts as the legal representatives of their clients, even if they do not hold the title of lawyer or have not completed any legal training. They may also take on the role of defence counsel in criminal tax trials. In very straightforward cases, or in cases that concern exclusively very specific tax law issues, that may make sense. In all other cases, where either the client’s existence is under threat or the matter turns on tactical questions of procedural law or on disputes about the interpretation of statutes, a lawyer specialising in criminal tax law should be brought in. This is so if only because the people sitting on the bench – in criminal as well as in tax proceedings – have the same training behind them as the lawyer and, in case of doubt, speak the same language. It is therefore not uncommon for the tax lawyer in fiscal court proceedings or in the course of criminal tax proceedings to take on the role of a “translator” between the world of tax and the world of justice.
2) Tax administration and fiscal courts
Tax law affects everyone – and no one likes it. Anyone who has income from his own work, from letting or from capital gains has to pay income tax. For employees this is usually paid over by the employer and is then called wage tax. The self-employed and traders must in addition pay VAT and trade tax. Anyone who acquires land has to pay real estate transfer tax. Where assets or land are transferred by way of gift or inheritance, gift and inheritance tax must be borne in mind.
German tax law is one of the most difficult areas of law on this earth. It comprises a multitude of statutes, regulations and administrative instructions. While Switzerland, Liechtenstein and the Cayman Islands cause a stir as so-called tax havens, German tax law resembles a desert that cannot be crossed. German tax law is made up of a potpourri of many individual statutes and is characterised by a continual change in the legal position. Numerous amendments to the tax statutes, as well as a broad spectrum of case law from the fiscal courts, mean that only the expert can still see clearly.
Where a contentious question of tax law can be interpreted in various ways, the tax administration will in case of doubt opt for the view that leads to a higher tax. From the point of view of the general public this approach is, admittedly, understandable and gratifying. For the individual taxpaying citizen, however, it can result in unreasonable burdens and injustices.
Curious things happen again and again in the interpretation of tax statutes. One example is what are known as non-application decrees (Nichtanwendungserlasse). These are issued by the Federal Ministry of Finance where the tax administration takes issue with a judgment of Germany’s highest tax court, the Federal Fiscal Court (Bundesfinanzhof, BFH) in Munich – which is not at all uncommon.
From the point of view of the rule of law, the Federal Fiscal Court, Germany’s highest court in financial matters, based in Munich, repeatedly sets things straight. Traditionally, fiscal judges do not necessarily take the pro-fiscal standpoint of the tax administration. Rather, they see themselves as committed to balancing justice in the tradition of the courts of earlier times, which throughout history repeatedly put the powerful in their place.
The self-image of fiscal judges is also connected with the fact that at the fiscal courts it is without exception fully qualified lawyers (Volljuristen) who are at work, that is to say people who have had the same legal training as other representatives of the legal professions, that is above all lawyers and public prosecutors.
Tax returns, by contrast, are processed on the tax office’s side at case-handler level primarily by specialists trained specifically for this purpose, who have undergone intensive in-house training within the tax office.
The different training paths of tax officials and judges sometimes lead to communication difficulties in practice. On the one side are people who can rightly claim of themselves that they grew up with the subtleties of tax law. Staff of the tax administration have, so to speak, absorbed the specifically tax-law way of thinking with their mother’s milk. On the other side are lawyers who claim for themselves that they are comprehensively qualified in methodology and possess a broadly based knowledge that covers the entire legal order. With few exceptions, lawyers only begin in the course of their training to concern themselves with tax statutes at all very late – and indeed at a point when their training in legal method has already largely been completed.
In addition to legal and fiscal interests, therefore, different worlds not infrequently collide in tax objection proceedings or in the course of fiscal court proceedings. The lawyer’s task here is to adopt, in the taxpayer’s interest, the bird’s-eye view to which, in case of doubt, the judges at the fiscal court also feel committed.
3) Tax judges and criminal courts
In criminal tax law in particular, a further bizarre constellation arises again and again, namely where criminal judges assess a set of tax facts differently from the fiscal courts. For the defendant in criminal tax proceedings this can have considerable consequences, since as a rule criminal proceedings are concluded more quickly than tax proceedings. It is true that § 396 AO offers the possibility of staying criminal proceedings where the assessment of a set of facts as tax evasion depends on whether, in substance, tax evasion is actually present. Although, under subsection 3 of that provision, the limitation period is suspended in the event of such a stay of the criminal proceedings, that is to say the interests of criminal prosecution are in fact not impaired, in practice very little use is made of this provision.
The criminal judges – who very often have no special training in tax law at all – consider themselves competent to decide tax matters. This sometimes leads to the absurd situation that citizens are finally convicted of tax evasion by a criminal judge and it later turns out that, on the view taken by the fiscal courts, there was in reality no tax evasion at all.
Constellations of this kind arise above all in drawing the line between permissible tax structuring and criminal abuse of tax structuring options (Gestaltungsmissbrauch). Prof. Dr. Rudolf Mellinghoff, President of the Federal Fiscal Court from 2011 to 2020 and previously a judge of the Federal Constitutional Court (Bundesverfassungsgericht), emphasised publicly again and again that the fiscal courts should exercise restraint in imputing abusive conduct, since making use of tax structuring options is legitimate in a state governed by the rule of law and is desirable in the interest of competition. Criminal judges, by contrast, frequently assume very quickly that the limits of what is permissible have been exceeded, with the argument “This can serve no purpose other than the avoidance of tax”.
Between criminal judges and tax judges there is therefore repeatedly a “clash of cultures” – even though the representatives of the respective jurisdictions apply the same legal provisions. In fleshing out and interpreting those provisions, considerable differences sometimes emerge. In extreme cases it has already happened that people have been held in custody on suspicion of criminal tax evasion – for a set of facts that is later interpreted by fiscal judges as not being subject to tax.