Tax Controversy 2025 Comparisons

In Germany, tax controversies are a product of the tax administration’s systematic and regular tax audit activity. International taxpayers are usually audited on a rolling three-year cycle, the so-called Anschlusspruefung. The tax auditors monitor whether the submitted tax returns of each of the tax years abide by the relevant tax law.

If that is not the case from the perspective of the tax auditors, they issue statements that summarise the tax auditor’s preliminary findings. Such findings are subsequently discussed in the further proceedings of the tax audit. Preliminary findings that cannot be resolved in these discussions are usually finally discussed in the final meeting of the tax audit. The final meeting pursuant to Section 201 of the General Tax Code (Abgabenordnung), the so-called Schlussbesprechung, is a right of the taxpayer and is a legal consequence of the taxpayer’s right to be heard in any tax procedure.

If the tax auditors and the taxpayer resolve the issues raised by the preliminary findings, the tax office will issue amended tax assessment notices (after tax audit). The taxpayer pays the taxes and the respective tax period is considered closed.

If the tax auditors and the taxpayer agree to disagree on selected preliminary findings, this will be documented in the tax audit report within the meaning of Section 202 of the General Tax Code ‒ ie, the so-called Betriebspruefungsbericht. Upon written request pursuant to Section 202 Subsection 2 of the General Tax Code, the taxpayer has the right to receive the tax audit report in draft form and may suggest amendments to reflect the taxpayer’s position on a controversial item.

From 1 January 2025 onwards, the taxpayer may also request a partial tax audit report on selected tax items (the so-called Teilpruefungsbericht) pursuant to Section 202 Subsection 3 of the General Tax Code if the taxpayer has requested in writing that a partial tax assessment notice be issued by the responsible tax office in order to close a specific tax issue at an earlier point in time than the entire tax audit may be closed. One reason for doing so is to limit the time during which the income adjustment triggers late payment interest (eg, for a large transfer pricing adjustment). The partial tax audit report and the partial tax assessment notice are available for taxes to be assessed for periods starting before 1 January 2025 if the notice that starts the respective tax audit, the so-called Pruefungsanordnung, is issued to the taxpayer after 31 December 2024 (see Article 97, Section 37, Subsection 3 of the Introductory Act of the General Tax Code).

In both cases, the partial tax audit report and the (full) tax audit report including the controversial findings will be passed on to the tax office that is responsible for the taxpayer. This tax office will subsequently issue amended tax assessment notices. With the issuance of the tax assessment notice, a tax controversy begins if the taxpayer disagrees with the findings that have led to the assessment. The taxpayer would then raise an objection to the tax assessment notice with the administrative appeals tribunal, an independent department in the tax office. Historically, more than 70% of all objections raised in Germany are resolved by administrative appeals tribunals granting leave to the taxpayer. Objections against tax assessment notices after tax audit have a significantly lower success rate; these are not tracked separately, though.

Based on the overview of the Federal Tax Gazette for 2023 and 2024, the majority of the cases decided upon by the Federal Tax Court (Bundesfinanzhof, or BFH) ‒ the highest tax court in the two-tiered German tax court system – concern:

• the Income Tax Act;
• the General Tax Code;
• the Fiscal Court Code (Finanzgerichtsordnung);
• the Value Added Tax Act (Umsatzsteuergesetz);
• the International Tax Act, a number of double taxation conventions and EU tax law (together “international tax law”); and
• to a lesser degree, the Corporation Tax Act (Koerperschaftsteuergesetz) and the Trade Tax Act (Gewerbesteuergesetz).

Property taxes such as the property tax (Grundsteuer), the real estate transfer tax (Grunderwerbsteuer) or the customs tax account for a very low number of cases. However, after the reform of the Property Tax’s valuation rules in order to address constitutional law requirements, Germany is experiencing a high number of cases in 2025 – ie, the first year of the Property Tax being assessed based on the new property values that replace the former values from 1964 (in the former West Germany) and 1935 (in the former East Germany). This trend may continue for a few years.

The proper application of tax law suffers from an information asymmetry between the tax administration and the taxpayer. The tax authority’s application of the law depends on the taxpayer’s co-operation in the tax return submission and in the tax audit procedure. The taxpayer has the legal duty to co-operate as is set out by several provisions in the General Tax Code (eg, Sections 90 to 100 of the General Tax Code). Such duty to co-operate extends to courts and administrative bodies in Germany and also into other EU countries where the tax administration is seeking administrative and legal co-operation and tax-relevant information (see Sections 111 to 117e of the General Tax Code).

In light of these legal requirements, taxpayers are well-advised to co-operate at least to the minimum extent necessary to meet the legal requirements and avoid non-documentation penalties, late submission charges or other legal consequences for non- or late co-operation. In Germany, a laissez-faire approach in relation to the tax auditor’s information requests or transfer pricing documentation requirements ‒ which may work in some countries ‒ is the major reason for a controversial situation even before objections or appeals are raised.

Topics that require a certain amount of judgment ‒ for example, the existence of a going concern (Teilbetrieb) in a corporate spin-off to ensure the transfer of assets at book value, or the treatment of certain transactions under the Value Added Tax Act ‒ could be resolved for a fee prior to implementation by applying for a private binding ruling (the so-called Verbindliche Auskunft) pursuant to Section 89 Subsection 2 of the General Tax Code.

The same applies for potentially controversial cross-border transactions that may be prone to transfer pricing adjustments or the assumption of the existence of a permanent establishment. In these cases, Section 89a of the General Tax Code provides a legal basis for entering and applying for an advance pricing agreement.

A new instrument is the risk evaluation procedure (REP), the so-called Risikobewertungsverfahren described in Section 89b of the General Tax Code. The REP mimics the International Compliance Assurance Programme (ICAP) and the European Trust and Co-operation Approach (ETACA) and may not be limited to EU- or European Free Trade Association (EFTA) countries. Similar to the ICAP and the ETACA, the REP does not provide legal certainty regarding the tax treatment of the selected fact patterns that have undergone a REP-review process by the German tax administration. However, less controversial matters that are put into a REP review may benefit from a positive evaluation and may no longer be a topic that is audited in the next tax audit.

Tax controversies may also be mitigated for future years if, after the conclusion of a tax audit, the taxpayer applies in writing for the tax administration to issue a binding confirmation letter (the so-called verbindliche Zusage) on how an audited fact pattern that is described in the partial or (full) tax audit report will be treated for tax purposes in future years (see Section 204 of the General Tax Code).

If the facts of a case may not be easy to work out owing to the amount of time that has elapsed between the tax audit and the relevant business activity, the tax administration and the taxpayer may draft and sign a letter of common understanding (the so-called tatsaechliche Verstaendigung). This instrument describes the common understanding of the underlying facts of a tax-relevant fact pattern and draws conclusions on the tax treatment, which are then binding for both parties. This instrument may be used for large numbers of similar events – for example, the assessment of wage tax for hundreds of employees having worked in Germany for a limited time per year each, where no wage tax was withheld by a German entity and where the analysis of the paid wages abroad would be very time-consuming in order to arrive at the exact tax treatment of all wage components in Germany.

Another instrument that the German tax administration has promulgated over years are joint tax audits. The state tax administrations of Bavaria and North Rhine Westfalia have for many years undertaken more than 100 joint tax audits each. The countries in focus of this pilot project were Austria, Italy and the Netherlands. Based on that experience, Germany advocates this instrument and would have been one of the main drivers behind the update of the Council Directive on administrative co-operation in the field of taxation (2011/16/EU) on 22 March 2021. Accordingly, the provisions in the EU Act on Administrative Assistance (the so-called EU-Amtshilfegesetz) are the legal basis for joint audits in Germany. Sections 10, 11, 12 and 12a of this Act provide the legal basis for the physical presence of civil servants of other EU member states in Germany (Section 10), of German civil servants in EU member states (11), for simultaneous (joint) tax audits (12), and for co-ordinated (joint) tax audits (12a).

Section 117e of the General Tax Code extends the option to have a joint tax audit together with one or more foreign tax administrations to countries outside of the EU. Hence, joint tax audits with countries that have signed the Convention on Mutual Administrative Assistance in Tax Matters are now possible. Article 8 of that Convention provides the legal basis for simultaneous tax examinations; Article 9 provides the legal basis for examinations or tax audits abroad ‒ ie, within the territory of the respective other country.

The interactive list of signatures and ratifications of Treaty 127 of the Council of Europe (COE), which can be downloaded from the COE website, also contains the date of the respective ratification and the entry into force of the agreement in the various states. The COE website also contains a detailed list of the countries that may have reservations regarding certain standards of the agreement.

Germany has placed quite some emphasis on measures to avoid tax controversies, as can be concluded from the number of different instruments. However, the individual behaviour of the people working as tax auditors (and in other functions in the tax administration) and the behaviour of the taxpayer essentially determine whether cases move into controversy mode. However, the rising number of cases in courts ‒ in particular, in relation to transfer pricing ‒ also indicates that increasing amounts of money are at stake where settlements are more difficult.

The OECD’s Base Erosion and Profit Shifting (BEPS) recommendations and the EU Anti-Tax Avoidance Directive (ATAD) rules will lead to an increase in tax controversies.

In Germany, taxpayers may apply for a waiver of payment (the so-called Aussetzung der Vollziehung) of the taxes assessed. A waiver is usually granted but may be combined with some kind of security from the taxpayer. Even though the late payment interest of taxes has reduced to 1.8% per annum since 2019, it is still highly advisable for a taxpayer to pay the taxes assessed if liquidity permits because the annual interest in the objection/appeal procedure is still 6%. Hence, any remaining taxes becoming payable trigger a 6% interest, which ‒ over a normal objection/appeal period of five years or more – is a high cost.

Taxpayers that form part of a multinational group of companies are usually tax audited on a rolling three-year tax audit cycle. Scarcity of personnel may lead to a risk-based approach going forward, with some years not being tax audited.

A tax audit is usually announced at the end of the calendar year in which the first year of the (three-year) tax audit period would become time-barred owing to the statute of limitation rules in Germany. From 1 January 2025, there is a time limit of five years for the duration of a tax audit. These five years may be extended quite easily if a taxpayer is not co-operative. The start of a tax audit suspends the statute of limitations period.

Tax audits usually take place on the taxpayer’s premises. Book-keeping information must be made available electronically, whereas other documents may be shared as printed documents or electronically. More and more, tax auditors ask for electronic data in general because it allows them to save time and to work more efficiently.

The key areas in any tax audit are cross-border transactions (transfer pricing), corporate reorganisations (including valuation of asset transfers), VAT, secondments of employees, the adherence to the general book-keeping rules, and the add-backs in determining the tax base for trade tax purposes.

The number of tax audits has not increased because all international taxpayers are tax audited under a rolling audit cycle spanning several consecutive years. Germany is a front-runner for joint tax audits and has considerable experience in that field.

Taxpayers are well-advised to prepare for a tax audit appropriately and have all legally required information and documents ready to submit upon request. Taxpayers should nominate one go-to person in the tax audit who should have a tax adviser qualification or equivalent to be able to respond appropriately in any communication with the tax administration. To wall against questions from the tax office is not an advisable strategy; it will sour the relationship and backfire, as it leads to a longer duration of the tax audit. This applies even more so under the modernised tax audit rules applicable from 2025.

Germany, not being a self-assessment country, does not have tax penalties in the strict sense of the meaning. The normal controversy path starts with an objection to the administrative appeals tribunal. Section 44 of the Fiscal Court Act disallows the direct appeal to the tax courts in principle. A direct appeal may only be permissible if the requirements of Sections 45 or 46 of the Fiscal Court Act are fulfilled. The main reason for the restricted access is that the fiscal courts rely on the parties to the objection procedure for a thorough description of the underlying factual situation, a concise outline of the relevant tax provision(s) applicable to the case, and the legal arguments used by each of the parties to defend their case.

The taxpayer has one month from the date of receipt of the tax assessment notice after tax audit to submit an objection to the administrative appeals tribunal. Subsequently, the taxpayer would have another couple of weeks to draft the reasoning for the objection. Then, there will be an exchange of letters between the tax office/tax auditor and the taxpayer, in which the argumentation is further elaborated in response to written statements made by the respective other party. The objection procedure ends either with a dismissal of the objection from the administrative appeals tribunal or with a full or partial relief.

After the receipt of a dismissal or a partial relief that is perceived insufficient by the taxpayer, the taxpayer has one month from the date of receipt of the decision of the administrative appeals tribunal to appeal that decision to the lower tax court that is responsible for the respective tax office having handed down its decision.

There is no time limit for the tax authorities to decide on an administrative claim (in this case, objection). Descriptions of facts in judgments from tax courts in Germany show that the objection procedure may last for several years. Section 46 of the Fiscal Court Act, however, provides for the legal basis to appeal a pending administrative claim for inactivity at the earliest six months after the submission of the objection letter (inactivity appeal). The tax court may then suspend the appeal and set a time limit to the administrative appeals tribunal at the responsible tax office for it to decide on the objection. After issuance of the decision on the objection, that decision will automatically become part of the initiated appeal if it does not provide for sufficient relief for the taxpayer so that it upholds its appeal.

Judicial tax litigation is initiated by an appeal to the tax court that is responsible for the district (Bezirk) in which the administrative body that has handed down the decision on the objection is located.

The taxpayer, or its legal representative, submits the objection letter followed by a letter containing the reasons for the objection. In the following months or years, the tax office as defendant and the taxpayer as plaintiff exchange pleadings with arguments and counterarguments. Usually, this exchange of arguments culminates in the oral hearing at the lower tax court. A couple of days after the oral hearing, the taxpayer may contact the office of the lower tax court to obtain an indication of the judgment that will be issued a couple of weeks after the oral hearing.

Documents would be produced as evidence, starting with the letter containing the reasoning for the objection and the pleadings from each party in the entire process of the litigation. In a tax litigation, it is rather uncommon to have witness evidence. The exception would be in cases involving the application of foreign law matters or where the tax court would not have the knowledge to evaluate a situation ‒ for example, in relation to benchmarking evidence in transfer pricing cases. Not calling in an expert witness may give rise to a procedural error that may be grounds for an appeal to the Federal Tax Court if the procedural error could be the reason for an unlawful judgment of the lower tax court (see Section 115, Subsection 2, Number 3 of the Fiscal Tax Code).

The burden of proof for an increase in the tax base usually rests with the tax administration. In cases where a taxpayer has claimed an expense and doubts have arisen about appropriateness of such expense (eg, payment of a management charge with a lack of documentation for received services), the onus of proof may move back to the taxpayer. In criminal litigation, the tax office needs to prove that the legal requirements for the assessment of criminal charges are fulfilled.

Any judicial tax litigation does not necessarily have to end with a judgment. The possibility of a settlement under the guidance of the presiding judge of the senate of the responsible tax court should always be kept in mind. Requesting an expert witness on factual matters with relevance for the decision (eg, the application of foreign law with a bearing on the application of German law), is advisable if no common understanding can be reached on such facts, including by the judges. The payment of the taxes owed is primarily a liquidity question and should have no bearing from a strategic perspective. The same rationale generally applies to the timing for the presentation of evidence because tax litigation is primarily a fact-based procedure. Withholding evidence for a more suitable future point in time does not seem appropriate.

Judicial tax litigation in Germany relies on jurisprudence, including from the German Constitutional Court, the ECJ, and selected doctrine in the form of commentaries, articles and administrative opinions (ie, public rulings from the Ministry of Finance). Jurisprudence from courts outside Germany usually does not have any bearing, even in cases where a specific provision of a tax treaty must be interpreted by a tax court in Germany. The same holds for international guidelines, as these are technically not law and therefore would not have to be considered by a tax court in Germany. Please note that German tax courts follow a static interpretation of law, which means that legislative materials that would have become available after the point in time when a tax provision was enacted – for example, the articles of a tax treaty ‒ would not (have to) be considered.

The tax administration or the taxpayer or both may appeal alower tax court’s judgment to the Federal Tax Court. The Federal Tax Court is the second and final instance in the German fiscal court system. An appeal to the Federal Tax Court requires a permission from the lower tax court to do so pursuant to Section 115, Subsection 1 of the Fiscal Court Act. The respective lower tax court that is responsible for a case in the first instance may permit an appeal on the grounds that:

• the case has fundamental relevance with regard to the underlying legal question;
• the development of the law or the uniform application of law requires a decision from the Federal Tax Court; or
• procedural errors have been identified and have occurred that could have been relevant for the decision (Section 115, Subsection 2 of the Fiscal Court Act).

If any of the three legal reasons for an appeal to the Federal Tax Court are not met, an appeal cannot be made successfully.

The stages of a tax appeal procedure are the same as those described in 4.2 Procedure for Judicial Tax Litigation and 4.3 Relevance of Evidence in Judicial Tax Litigation but aim at establishing that there is a legal question ‒ within the meaning of Section 115, Subsection 2 of the Fiscal Court Act ‒ that requires a new consideration of the judgment from the lower tax court. Again, the tax appeal culminates in an oral hearing at the Federal Tax Court in Munich.

The allocation of cases to a senate in a tax court follows a predetermined set of rules. The Federal Tax Court publishes a case assignment plan every year whereby the cases are assigned according to the respective provision in any of the existing tax acts in Germany. Any case involving VAT, for example, will be assigned to the fifth or eleventh senate of the Federal Tax Court. Judges are not appointed to any case but to a specific senate for a certain time. Taxpayers may request that their case is not decided by a single judge but by the entire senate. The allocation of cases to senates of the lower tax courts may follow a different set of rules.

The assessment of taxes in Germany is a measure of public law with a very low level of discretion. Thus, it is usually not open for mediation or arbitration beyond the defined procedures described in the other sections.

Tax disputes are settled in the tax audit or at the administrative appeals tribunal with the tax administration, in court or in a mutual agreement procedure or advance pricing agreement with the representatives of the tax administration of one or more other countries.

Taxes, interest or penalties may be reduced if their assessment is unreasonable within the meaning of Section 163 of the General Tax Code.

German law provides for many instruments that allow for effective avoidance of any dispute in many cases (please refer to 1.3 Avoidance of Tax Controversies).

Please refer to the preceding sections in 6. Alternative Dispute Resolution (ADR) Mechanisms describing the available procedures in Germany.

Transfer pricing cases or cases involving indirect methods are not treated differently and follow the general tax procedure.

If a situation gives rise to the valid assumption that taxes were understated, the tax administration has no discretion but must report the case to the department that is responsible for the assessment of administrative fines and criminal charges. That department may initiate criminal proceedings against the managing directors of the respective company.

Please note that German law does not apply criminal law to corporate bodies. Usually, the criminal proceedings remain inactive or are suspended until after the appropriate application of the relevant tax law to the case at hand is determined by the tax administration, with the co-operation of the taxpayer.

See 7.1 Interaction of Tax Assessments With Tax Infringements.

The tax office usually does not differentiate between administrative infringements or criminal behaviour. The decision for any of these two options happens at the end of the criminal investigations based on the full knowledge of the facts of the case at hand. The corporate taxpayer’s and the tax adviser’s common objective would obviously be to reduce the reaction of the government to an administrative fine against the company for negligence rather than a criminal charge against any (or all) of the managing directors of that company, including their respective chain of command.

The stages of a tax administrative infringement process and of a tax criminal case are described in the previous sections of 7. Administrative and Criminal Tax Offences. Tax and criminal matters are decided in different courts.

The interdependence of payments of taxes, fines, criminal interest, etc, and the decision about an administrative fine or criminal charge is a complicated matter that is subject to many interlinking rules.

The usual procedure is to try to link both legal areas in negotiating a solution. The outcome of such procedures hinges on a variety of factors and the behaviour of the relevant stakeholders during the entire procedure and, therefore, does not allow for predictions.

Recent cases show that decisions may be appealed to the (German) Federal Court of Justice (Bundesgerichtshof) and even to the (German) Constitutional Court.

Transactions and operations that have been challenged in Germany under the General Anti-Avoidance Rules (GAAR), the Specific Anti-Avoidance Rules (SAAR) and the pricing transfer rules have given rise to the initiation of criminal procedures against the managing directors of the respective corporate taxpayers. As indicated in 7.1 Interaction of Tax Assessments With Tax Infringements, the tax auditor or tax office would simply inform the responsible department based on valid assumptions that the requirements may be fulfilled.

In cases that result in double taxation, it is not uncommon to pursue both tax litigation and the initiation of a mutual agreement procedure under a tax treaty or under the EU Arbitration Convention with binding arbitration. The objection/appeal may be kept dormant until after a mutual agreement procedure culminates in an agreement that resolves double taxation. Conversely, it may be pursued actively and in parallel to a pending mutual agreement procedure.

If Germany is the country that has triggered the double taxation by an adjustment to the taxable income of a taxpayer in Germany, there is no imminent legal need to keep the tax periods open. The reason is that Section 175a of the General Tax Code and many tax treaties provide for a re-opening of tax assessment notices in Germany, regardless of the statute of limitation.

The same applies for situations where the initial adjustment to taxable income giving rise to double taxation has occurred abroad. The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) (the “BEPS Multilateral Instrument” (MLI)) and the EU Tax Dispute Resolution Directive have not changed the situation significantly. Germany has enacted the Dispute Resolution Act (Streitbeilegungsgesetz) to transform the EU Tax Dispute Resolution Directive into local tax law. The Dispute Resolution Act carries multiple disadvantages for the taxpayer, who loses many rights usually available in the tax litigation procedure, which renders it unadvisable to use the tax litigation procedure instead of the objection/appeals procedure in combination with a mutual agreement procedure under an applicable tax treaty or under the EU Arbitration Convention.

The German GAAR rule in Section 42 of the General Tax Code has been in place for decades and has been invoked occasionally by the tax administration to allow adjustment to the taxable income or to challenge positions of the taxpayer. Invariably, the Federal Tax Court has dismissed the majority of the cases and has restricted the application of Section 42 of the General Tax Code to cases where no other, more specific norm could be applied. In most cases, the latter was the case so that the application of Section 42 of the General Tax Code was dismissed by German tax courts.

Transfer pricing adjustments made in Germany have been challenged regularly throughout the past ten years using all facets available. For a number of years, Germany has had the largest number of mutual agreement cases pending, as per the published OECD statistics. Germany has also seen a rising number of transfer pricing cases in tax courts during the past ten years ‒ the majority of which deal with:

• inbound and outbound financial transactions;
• business restructurings;
• the impact of year-end adjustments on the customs value; and
• the transfer pricing treatment of parallel imports in the pharmaceutical industry.

Recent data reveals that there are even a few cases challenged based on the framework of the EU Tax Dispute Resolution Directive.

Advance pricing agreements are a commonly used instrument and they follow the general rules with a pre-filing conference, submission of an application, information requests and answers, and the final negotiation between the tax administrations involved.

There is no significant difference between the amount of litigation generated by various types of cross-border situations (eg, withholding tax, private equity, and transfer pricing). There has been no noticeable new litigation concerning this area.

In general, tax provisions (eg, those providing support to various taxpayers during the COVID-19 pandemic and in other situations) may lead to disputes between the EC on one side and the German government or selected companies benefiting from such tax provisions on the other side. Germany is not exception to the rule.

The procedure of initiating state aid cases typically follows a certain pattern. Usually, competitors, countries or interested groups submit a request to the EC to start an investigation into whether state aid has been granted in the form of a beneficial tax provision or practice (eg, a tax ruling system). Conversely, EU governments would invariably and proactively contact the EC to evaluate and advise on whether a draft legal provision may qualify as state aid before it is enacted (eg, COVID-19 support legislation).

Based on the available public information, there do not seem to be instances of taxpayers challenging requests for additional tax assessments by the State to recover unlawful/incomapatible fiscal state aid granted to such taxpayer.

Based on the available public information, there do not seem to be any cases of refunds following subsequent litigation against the State, invoking extra-contractual civil liability, in the area of tax law.

Germany has agreed arbitration clauses with selected countries based on previous experience in mutual agreement procedures. Arbitration procedures are regularly undertaken under these arbitration clauses if both countries agree that the underlying case is appropriate for arbitration.

Germany does not have specific limitations regarding access to the arbitration procedure beyond the limitation in the EU Arbitration Convention or the respective tax treaty. In terms of Article 23 of the MLI, Germany has declared openness to both the final offer procedure and the independent opinion arbitration procedure. This is in accordance with the EU Arbitration Convention and the tax treaties Germany has entered into.

Please refer to the final sentence in 10.3 Application of Baseball Arbitration or the Independent Opinion Procedure.

The implementation of the MLI or current trends in international tax arbitration made by the OECD and the UN in their most recent model conventions are not applicable to Germany, as it is an EU member state.

Germany has resolved arbitration cases under both the EU Arbitration Convention and under double tax treaties with an arbitration clause (eg, its treaties with Switzerland and the USA).

In the current political climate, it is difficult to speculate about the introduction of Pillar One and Pillar Two. Irrespective of the outcome, additional tax legislation in the international domain will always trigger additional potential for tax disputes involving Germany.

Tax secrecy rules significantly restrict any form of publication. These are the reasons why even some judgments from tax courts are not published if the description of the facts of the case may allow the identification of the taxpayer.

The most common legal instruments to settle tax disputes are the mutual agreement procedure under the EU Arbitration Convention and the mutual agreement procedure under any applicable tax treaty, as well as ‒ to a significantly lesser extent ‒ the advance pricing agreement.

Taxpayers may pursue the objection and appeal procedure up to the lower tax court without any eligible representative within the meaning of Section 62, Subsection 2, Sentence 1 of the Fiscal Court Act. An appeal to the Federal Tax Court requires representation by a person mentioned in Section 62, Subsection 2, Sentence 1 of the Fiscal Court Act. It is generally advisable to use an expert, beginning from the submission of an objection against a tax assessment notice.

The objection procedure at the administrative appeals tribunal does not trigger any fees or costs except for the costs for an external tax adviser.

The court fees are determined in accordance with the German Court Cost Act and depend on the amount in dispute, the respective type of appeal, and the instance at which relief is being sought. The courts decide on whether the plaintiff, the defendant or both must pay all or parts of the fee; this may lead to a refund for the taxpayer. Usually, the courts determine a provisional court fee and issue a notice to the taxpayer, who would then pay the preliminary court fee. The final fees are assessed by the court after the termination of the proceedings, including through judgment, and do not trigger interest.

Taxpayers may decide to raise a claim of public liability (Amtshaftung) in cases where a tax assessment was null and void or where the tax administration has not applied the law appropriately or where judgments from the Federal Tax Court interpreting the law have not been applied by the tax administration. Claims of public liability are raised often.

In Germany, only the private binding ruling (verbindliche Auskunft) and advance pricing agreements trigger any costs. The fee for an advance pricing agreement amounts to EUR30,000 (prolongation: EUR15,000) and a quarter of these amounts for non-transfer pricing cases. In transfer pricing cases, further reductions are possible in cases of prior joint tax audits or under the de minimis rule of Section 6, Subsection 2, Sentence 1 of the German Transfer Pricing Documentation Regulations (Gewinnabgrenzungsaufzeichnungsverordnung). The fee for the private binding ruling is determined with reference to the value the ruling has for the taxpayer if the value is higher than EUR10,000, taking into account Sections 34 and 39 Subsection 2 of the Court Cost Act.

Statistics regarding the number of tax court cases currently pending in each instance are published by the are primarily published annually. The Federal Fiscal Court may also publish data related to its own cases. These statistics do not provide information about their value, nor any information about the number of cases per judge (of any instance) or senate.

There is no public information available regarding the number of cases initiated or terminated each year concerning different taxes (eg, corporate income tax, individual income tax, VAT, customs duties, stamp duties, transfer tax), nor any information available regarding the senates dealing with these types of taxes.

The success rate of taxpayers in tax litigation varies over time and depends on many factors in the respective case at hand. The most recent statistics from the Federal Tax Court’s Annual Report 2024 confirm that the success rate for appeals remains at 44%, whereas the equivalent rate for complaints for not granting leave to the Federal Tax Court remains at 14%. The latter number shows that it is difficult to establish that the requirements of Section 115, Subsection 2 of the Fiscal Court Act are met if the lower tax court does not grant leave to the Federal Tax Court automatically.

The key strategic aspect to keep in mind in any tax controversy is to keep all potential options on the table, including a settlement. This is because the likelihood of success of the different options may change over time.