German Tax and Legal News
Mondaq Business Briefing › Germany Law Articles in English (2004)
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German Tax and Legal News
Taxation Of Private Capital Gains 1997/98 Offends Against The Constitution
The Constitutional Court has held the taxation of private capital gains from the sale of securities in 1997 and 1998 to be null and void, because it offends against the requirement for equality of treatment. The Court emphasised that its objection was not against the provisions in the statute per se but only against the random and uncontrolled manner in which they were applied. Any assessments for 1997 and 1998 that are still open must now be adjusted to eliminate any income tax liability on capital gains, but there is no question of reopening assessments that have already become final and binding. On the other hand, defaulters who failed to declare their capital gains in those years cannot now be pursued.The Court's reasoning turned on the "contradiction" between the statute defining the tax obligation and the rules for its enforcement. It saw these as being "designed to be ineffective". It made much of Sec. 30a of the Tax Management Act which prohibits the tax auditors of banks from randomly selecting customer transactions for checking against the tax returns filed by the individuals concerned. Such a check can be made, but only in the specific circumstances of a founded suspicion against a particular customer. This puts the tax auditors in a difficult position when faced with a bank refusing to give them the addresses they need. Since the tax offices are generally unable to do their own field audits of private individuals not required to keep accounts or records other than those necessary to document the returns that they do make, failure to declare almost always went undiscovered and therefore unpunished. The statements given in evidence before the Court seemed to indicate that tax evasion through failure to declare short-term capi...See the full content of this document
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