Submitting a Tax Return After an Estimated Assessment: Tips Worth Knowing

Tax authorities may resort to estimated assessments across a wide range of taxes.

Typical examples:

• Income tax
• VAT
• Corporation tax
• Trade tax

A tax assessment based on an estimate is designed to exert pressure: alongside other means of compulsion such as late-filing surcharges and penalty payments, tax authorities use it to ensure that you, as a taxpayer, fulfil your duty to provide information and cooperate. The legal basis for an estimated assessment is found in § 162 of the Fiscal Code (Abgabenordnung, AO).

The most common reason for an estimated assessment is the absence of a tax return. If you miss the filing deadline, the tax office will request that you submit one. This is usually followed by a warning and the imposition of a penalty payment. If these measures fail to produce the desired result, the tax authority will estimate the basis on which the tax is calculated.

An estimated assessment may also arise if your tax return contains gaps or if tax officials have doubts about its factual accuracy. The tax office will typically draw attention to this and request that the relevant information or documents be submitted, or that the data in question be corrected. In such circumstances, the duty to provide information and cooperate applies equally. Should you fail to meet this obligation, an estimated assessment will follow.

Where an estimated assessment is issued, the tax office must proceed in a transparent and comprehensible manner. The Fiscal Code requires the authority to take all available facts into account and to carry out the most precise estimate possible. In most cases, officials base their estimate on the tax assessments from previous years.

There is a degree of discretion here, which the tax office will exercise to your disadvantage. This approach has been confirmed by the courts: taxpayers have breached their duty to provide information and cooperate and should therefore not benefit from that failure.

Although an estimated assessment is not a penalty as such, it is intended to increase pressure on business owners and other taxpayers. For most taxpayers, its effect is preventive. They submit their tax returns on time, or upon request, in order to avoid a financially disadvantageous estimated assessment.

Have you missed the filing deadline and also ignored a reminder from the tax office? Are you now holding an estimated assessment with a demand for payment? Act quickly and, ideally, get in touch with a tax adviser without delay!

Please be aware that you are required to settle the assessed tax liability within the stated deadline. This applies even if you subsequently submit your tax return and expect a lower additional payment. However, your tax adviser can apply for a suspension of enforcement within the one-month objection period. This will only have the desired effect if you simultaneously submit the outstanding tax returns.

As a general rule: tax authorities prefer an actual basis for calculating tax over an estimated assessment. It is therefore possible to submit the outstanding tax returns retrospectively. If you fulfil your filing obligation after an estimated assessment has been issued, the tax office will recalculate your tax liability.

In terms of the time available, what matters is how the tax office has issued the tax assessment:

• Subject to review: In many cases, the tax assessment is issued subject to review and is therefore not final. For as long as this reservation of review remains in place, you can also have the tax assessment amended in your favour.
• Final tax assessment: Even where this reservation is absent, you can challenge the estimated assessment. Make use of the one-month objection period to do so!

Please bear in mind that an estimated assessment gives rise to an immediate payment obligation. Settle the estimated tax liability! The only way to avoid this is to apply for a suspension of enforcement within the objection period whilst simultaneously submitting your tax return. Seek well-founded advice from your tax practice!

By the time an estimated assessment has been issued at the latest, it is advisable to engage an established tax adviser. Better still: permanently entrust the completion and submission of tax returns to a tax consultancy.

Tax experts will alert you to filing deadlines in good time and remind you when data or documents are missing. With the support of a tax consultancy, you can avoid estimated assessments and the frustration of unnecessary additional costs!

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