Binding tax assessment – draft agreements must be presented

A binding assessment from the competent tax authority can help to reduce tax uncertainties regarding planned transactions. However, special care must be taken in the wording of a request for such a binding assessment. If important details are absent, the assessment will in a worst-case scenario not be binding on the tax authority. Or the authority may reject the application if they realize the incompleteness of the facts presented, resulting in avoidable costs then arising.

Among other things, it is essential that the application includes a comprehensive, self-contained presentation. All the facts that are of importance to the situation under assessment that has not yet been realized, must be presented. The decisive factor is not only the applicant's perspective, but also that of the tax authorities. In the view of the Nuremberg Finance Court (judgment of December 5, 2017, 2 K 844/17) it is necessary, for example, that the applicant generally submits the full draft agreement (or the existing agreement including the intended changes). Because of the fundamental importance of the decision, however, the Nuremberg Finance Court allowed an appeal.

Whether a binding assessment is a suitable means to limit tax risks in individual cases and the details that need to be taken into consideration in the application, requires careful consideration.