Binding information from the tax office

Binding information in cases where clarification is required: Tax agreements between the tax office and the taxpayer are in principle inadmissible. However, in order to take particular account of the principle of the protection of legitimate expectations, the legislature has, in Section 89(2) of the German Fiscal Code (AO) the so-called „binding information“ introduced. It is intended to enable taxpayers to assess the tax implications of their actions in advance with a reasonable degree of legal certainty – and to avoid any „unpleasant surprises“ during subsequent tax assessment proceedings.

Whether it is advisable and possible to obtain a binding ruling can only be determined on a case-by-case basis, depending on the specific circumstances. As we provide comprehensive and holistic advice, we always raise the issue of „binding information“ whenever we encounter circumstances requiring clarification with our clients or identify significant potential risks. However, we – a team of specialist solicitors, qualified legal experts and tax advisers – are also happy to assist you with specific enquiries regarding binding information.

To what extent is the binding information actually binding?

A binding ruling is only binding on the tax authority if it is based on a complete account of the facts. This means that, in your application for a binding ruling, you must disclose all circumstances that are relevant to a tax assessment. In addition, there are further formal criteria for submitting the application, which are set out not only in Section 89(2) of the German Fiscal Code (AO) but also in the Tax Information Regulation (StAuskV).

Provided that all tax-relevant circumstances were set out in the application, a binding ruling issued is binding on the tax authorities as long as 1) the legal provisions in force at the time the ruling was issued do not change, and 2) the facts that subsequently materialise do not differ, or differ only insignificantly, from the facts that formed the basis of the ruling at the time. A binding ruling may be revoked or amended if it transpires that the ruling issued was incorrect.

For these reasons, absolute legal certainty cannot be achieved even when a binding ruling is obtained. Nevertheless, it provides taxpayers with a suitable means of aligning their tax planning and proposals, as well as their own tax interpretation of the facts, with the tax authority’s view, and of predicting the tax implications with a reasonable degree of certainty.

For the provision of binding information, a fee is levied by the tax authority in accordance with Section 34c of the Court Costs Act (GKG) where the value of the matter is €10,000 or more. If the value of the matter cannot be determined, the fee is calculated on a time-spent basis at a rate of €50 per half-hour or part thereof, provided that the time spent exceeds two hours. If the application is withdrawn before the binding information is provided, the fee may be reduced.

In addition to binding information, tax law contains similar legal provisions, such as the binding undertaking following an external audit (Sections 204 et seq. of the German Fiscal Code (AO)) and the advance ruling on payroll tax (Section 42e of the German Income Tax Act (EStG)).