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The German 1997 Annual Tax Act
The German 1997 Annual Tax Act (Jahressteuergesetz 1997) was enacted into law in December of 1996 and has since entered into force. Most, but not all, of its provisions take effect on 1 January 1997. Please note that this article is one of a 14-part set of articles describing the 1997 Annual Tax Act.
XI. TAX PROCEDURE ACT AND TAX COURT PROCEDURE ACT
11.1 Scientific And Research Institutions
A tax-exempt corporate entity which engages in business activities enjoys no tax exemption with respect to such activities (sec. 5 par. 1 no. 9 sent. 2 KStG) unless these are "purpose-related" (constitute a "purpose-related business" - Zweckbetrieb) within the meaning of sec. 64 ff. AO. A purpose-related business is one which is necessary in order for the corporate entity to achieve the purposes which justify its tax exemption (sec. 65 AO). The 1997 Annual Tax Act states that scientific and research institutions can constitute a "purpose-related business" if operated by an organisation funded predominantly by grants from public or private sources or by its own income from passive asset management (e.g. an endowment fund). Contract research is expressly included within the scope of the provision, whereas activities unrelated to research, activities limited to the application of established scientific knowledge, and project sponsorships (Projektraegerschaften) are expressly excluded.
11.2 STATUTE OF LIMITATIONS
Previously, the statute of limitations for tax assessments pursuant to a "base assessment notice" (Grundlagenbescheid) could not expire until at least one year after issuance of the base assessment notice. From 1 January 1997 on, this period has been extended to 2 years. A base assessment notice is one the results of which are in some respect binding with respect to other assessments, called "consequential assessment notices" (Folgebescheide).
11.3 INTEREST ON BACK TAXES AND REFUNDS
Currently, interest is owing at 0.5 % per month on back taxes and on tax refunds for the period beginning 15 months after the tax in question arises (for income taxes, 15 months after the end of the calendar year, e.g. on April 1st of Year 03 for income tax with respect to Year 01) and ending upon issuance of the respective assessment notice or upon expiration of 4 years, whichever occurs first. This rule led to anomalous results when a tax assessment had to be changed because of an event with retroactive tax effect and loss carrybacks. For instance, when a loss from Year 03 was carried back to Year 01, this caused the original assessment for Year 01 to be reduced and triggered automatic interest owing by the tax authorities on the amount of the reduction for the period from 1 April 03 to the date of issuance of the assessment notice which reflected the carryback. For losses arising after 31 December 1995, the interest period does not begin until 15 months after the end of the calendar year in which the loss in question arose. A similar rule now applies as well to events with retroactive tax effect (begin of interest period 15 months after the end of the year in which the event occurred, instead of the end of the year which the event affects).
11.4 STAYS AND CANCELLATION OF EXECUTION OF TAX ASSESSMENT NOTICES
Revisions in sec. 361 par. 2 AO and sec. 69 par. 2 FGO provide that the stay or cancellation of execution of tax assessment notices by the tax authorities or the tax courts will as a rule not lead to a refund of assessed tax prepayments.
This article is one of a 14-part set of articles entitled "The German 1997 Annual Tax Act" in which we have endeavoured to provide a useful overview of what we consider to be the major changes made in the German laws by the 1997 Annual Tax Act and, more selectively, by other recent legislation. To access the other articles in the set please enter 'The German 1997 Annual Tax Act', 'KPMG Tax Advisers' and 'Business Monitor'. We are of course at your disposal to discuss in depth the ramifications of new provisions which are of particular interest to you.
Disclaimer and Copyright
This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. We in particular insist that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Please note the date of each article and that subsequent related developments are not necessarily reported on in later articles. Any claims nevertheless raised on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.