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1.General revocation of prepayment assessments for periods after 1996

As reported in article no. 58 on the 1997 annual tax act, the net worth tax became unenforceable for reasons of constitutional law as of 1 January 1997. This was a consequence of the intentional failure of the Government to amend the net worth tax law by the end of last year. The Federal Constitutional Court had ruled the net worth tax unconstitutional in June 1995 (see article no. 25), but allowed continued collection of the tax through 1996. After 1996, collection was contingent upon amendments to bring the tax into line with constitutional requirements.

The regional tax authorities have in the meantime issued instructions to the local tax offices to revoke all net worth tax prepayment assessments for periods after 1996. Instead of sending individual notices to all taxpayers, the revocation is to take the form of a general administrative announcement (Allgemeinverfuegung) under sec. 118 AO. Such announcements should by now have been posted in the tax offices and town halls and published in the newspapers (cf. DB 1997, 303 for the respective instructions of the Ministry of Finance of Baden-Wuerttemberg).

2.Assessment of tax for periods prior to 1997

Controversy surrounds the question whether the unconstitutionality of the net worth tax now prevents assessment and collection of the tax for periods prior to 1997 as well. While it was clear under the decision of the Federal Constitutional Court that collection measures were permitted through the end of 1996, it is not so clear whether tax for periods prior to 1997, to the extent not already assessed by the end of 1996, may now still be assessed and collected. Also disputed is the status of assessments issued prior to 1997 but not yet final (e.g. because of appeal) on 1 January 1997. The issuance of formal notices of assessment is an indispensable administrative act in the German tax system.

The regional tax authorities in Berlin and Frankfurt am Main have now issued administrative orders taking the position that the tax offices may continue to enforce the net worth tax law for periods prior to 1997 (administrative orders of 14 March and 20 March 1997, DStR 1997, 581 and DB 1997, 805 respectively). Furthermore, the tax court of Rheinland-Pfalz held in a decision dated 8 April 1997 (2 K 2794/95 - Handelsblatt 12 June 1997, p. 6) that an assessment for the year 1994 issued prior to 1 January 1997 but still open on appeal on this date remained enforceable in spite of the constitutional law situation.

There are also already several court decisions on assessments issued after 1 January 1997. In its interlocutory ruling of 19 June 1997, the Federal Tax Court upheld a lower court decision holding that the permissibility of such assessments was not subject to serious doubt and therefore collection of such assessments should not be stayed when an appeal is pending. The Duesseldorf tax court, on the other hand, is known to have granted a stay of collection of tax in a case posing the same issue.

Taxpayers should consider carefully whether they wish to challenge assessments for periods prior to 1997 on constitutional grounds.

3.Proposed reintroduction of the net worth tax

As a final net worth tax note, we point out that the Social Democrats have made the reintroduction of the net worth tax one of the main points in their tax proposals announced in May 1997 (see article in this issue on the status of German tax reform).

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