Unannounced flat inspection by the tax office

Officials entrusted by the tax office with carrying out the inspection as well as experts called in for the tax proceedings may enter the properties and premises of the taxpayer, to the extent necessary in order to reach findings in the interest of taxation, § 99 of the German Fiscal Code (Abgabenordnung; AO). In this case, the persons affected by the entry shall be notified in advance within a reasonable period of time. Furthermore, a far-reaching restriction applies to residential premises on the basis of the constitutionally guaranteed inviolability of the home. In its ruling of July 12, 2022 (Case No. VIII R 8/19), the German Federal Fiscal Court (Bundesfinanzhof; BFH) commented on the legal question of whether an unannounced flat inspection by an official of the tax investigation department for the purpose of verifying the information on a home office complies with the statutory principles.

In the dispute, a management consultant claimed expenses for a home office for the first time. Upon request by the tax office, she submitted a sketch of the flat, which the tax office caseworker considered to be in need of clarification. He therefore asked a so-called flank protection auditor, i.e. an official from the tax investigation department, to visit the flat. He appeared unannounced at the door of the consultant’s flat, identified himself as a tax investigator and entered the apartment with reference to the inspection in the taxation proceedings; the consultant agreed. The flank protection auditor determined that the home office was present as indicated. In his note to the assessment district, he also pointed out the management consultant’s intended move to the flat across, which is why it was necessary to wait and see what room layout would then result. In this context, the management consultant filed an objection against the flat inspection that had been carried out. The BFH ultimately classified the measures of the tax office as disproportionate and thus unlawful.

Initially, a declaratory interest is required for declaratory proceedings to be conducted as in this case - the measure in question had long since been terminated. There were no sufficient grounds for rehabilitation, and the BFH did not see any profound infringement of fundamental rights. However, it did assume a concrete danger of repetition. This is because the note of the flank protection auditor suggests an audit in the same form - unannounced by an official of the tax investigation department - after the intended move. Thus, the BFH was able to enter into the assessment of the measure in question per se and judged such a review as a violation of the principle of proportionality. This was because the tax office had equally suitable but milder means at its disposal, such as a further written request for information or a site visit after prior notification by an official of the assessment district.

Even if the tax office is allowed to choose the means it deems most appropriate for determining the basis of taxation, it must be taken into account whether the taxpayer voluntarily discloses the tax-relevant facts upon request. Thus, in the case in dispute, a site visit would only have been necessary if the uncertainties could not have been clarified by further information provided by the management consultant. In addition, she would have had to be notified of a site visit an appropriate time before entering. This could only have been omitted in exceptional cases if the purpose of the measure would otherwise have been endangered or even thwarted, e.g. because the object to be inspected could have been changed or removed. However, this was not to be expected in the case in dispute. Furthermore, it may not be assumed to the disadvantage of the taxpayer that prior notification is generally used to prepare the home office accordingly. In its discretionary decision, the tax office therefore misjudged the scope of the protection of the fundamental right of inviolability of the home pursuant to Article 13 (1) of the German Constitution (Grundgesetz), which also includes the home office, and thus acted unlawfully.

The fact that the site visit in the disputed case was carried out by a flank protection auditor and not by an official of the assessment district may also jeopardise the personal reputation of the management consultant and is therefore also inappropriate.