Assessment of interest on tax evasion and the assessment of investment income: application of the rules on the burden of proof to the detriment of the taxpayer is inadmissible – Federal Fiscal Court (BFH), judgement of 12 July 2016, II R 42/2014 and Berlin-Brandenburg Finance Court, judgement of 20 April 2016, 14 K 14270/15
When determining interest on tax evasion, it is not permissible to apply the rules on the burden of proof to the detriment of the taxpayer, as both the objective and subjective elements of tax evasion must be satisfied for this to apply.
Under criminal law, the presumption of innocence generally applies if the claim made by the taxpayer is „plausible“. The burden of proof generally lies with the tax authorities, meaning that, in this case, interest on tax evasion should not be imposed. The court must be satisfied that the objective and subjective elements of the offence are present in court proceedings. A decision based on the principles of the burden of proof to the detriment of the taxpayer is not permissible. Nor does the increased duty to cooperate under Section 90(2) of the German Fiscal Code (AO) alter this.
The burden of proof in relation to facts giving rise to tax liability with a foreign element – for example, where there are indications of foreign investment income – cannot be reversed, as this would mean that the taxpayer would have to prove that no investment exists with a foreign bank. However, as such proof is not possible, there is also no increased duty to cooperate under Section 90 of the German Fiscal Code (AO).
It is not possible to assess tax liabilities on the basis of probabilistic considerations regarding the existence of foreign investment income, as circumstantial evidence alone is insufficient. In cases of doubt, the legal principle of „in dubio pro reo“ also applies here.
A sufficient determination of the facts in relation to investment income is therefore only deemed to have been made if it involves the allocation of the receipts to a specific type of income and to specific accounts held by the taxpayer, and if this allocation is also justified in a comprehensible manner. Only then may capital income be estimated in the absence of any other evidence.
For further information, please do not hesitate to contact our specialist tax lawyers and tax advisers.
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