On 23 September 2009, the German Federal Fiscal Court published a decision from 24 June 2009 in which it held that the German tax authorities’ right to request data within the scope of a tax audit does not exceed the taxpayer’s obligation to keep records and that the tax authorities have no right to demand additional data which a taxpayer creates voluntarily if such data is not required by law.
In the case under consideration, the taxpayer kept records to the extent legally required and also used an electronic accounting system. Within the scope of a tax audit, the tax authority requested data in the form of the electronic accounts kept for 2002 and 2003.
The taxpayer refused to provide the requested data and this position was accepted by the tax court. The Federal Fiscal Court upheld the tax court’s decision with the following reasoning:
Sec. 147 of the German Fiscal Code (Abgabenordnung, AO) provides a list of the records which taxpayers are required to keep (Sec. 147 (1) AO) and specifies the right of the tax authorities to request data if such records were kept by means of electronic bookkeeping (Sec. 147 (6) AO).
The Federal Fiscal Court ruled that Sec. 147 (6) AO only refers to the records that must be kept according to Sec. 147 (1) AO with the result that records kept electronically which are not required to be kept under Sec. 147 (1) AO, cannot be requested by the tax authorities.
The Federal Fiscal Court also defined the records which taxpayers must keep in accordance with Sec. 147 (1) AO as those records which the taxpayer is obliged to create with the result that the obligation to keep records is accessory to the existence and the extent of the obligation to create records. Therefore, the Court concluded, records which a taxpayer is not required to create must also not be kept by the taxpayer. The Court further noted that taxpayers must create those records which are defined as mandatory by law as well as records which are of importance for understanding and verifying the statutory records.
In the case under consideration, the taxpayer calculated its profit using cash-based accounting methods. The Federal Fiscal Court found that the data produced by use of the electronic accounting system was not necessary for reviewing or understanding such profit calculation and therefore held that the tax authority’s demand for the provision of the electronic data exceeded its audit powers.