Right to Inspect Files in Taxation Proceedings: “Equality of Arms” through the General Data Protection Regulation (GDPR)

I. Overview
The General Data Protection Regulation (GDPR) has led to great uncertainty and considerable effort for companies in implementing it. Even if the GDPR is therefore often perceived as a burden from the entrepreneurial side, rights for companies can certainly be derived from it. These rights have recently gained considerable importance in the context of taxation proceedings. This is because there is only “equality of arms” here if the taxpayer has full knowledge of the contents of the file. Whereas in practice there was previously only a very limited right to inspect files, a corresponding right can now be derived from the GDPR in conjunction with regulations from the German Fiscal Code (AO).

II. Legal situation before the entry into force of the GDPR
A right to inspect files in taxation proceedings was not regulated by law until now. Although there are provisions in the freedom of information laws of the federal and state governments, the right to inspect files only existed – more or less certainly – vis-à-vis the federal financial authorities. However, there was no de facto legal right to inspect files vis-à-vis a local tax office in ongoing taxation proceedings. Rather, the tax authorities had to decide on the requests for file inspection at their discretion. Such requests were often rejected with the result that the taxpayer had to decide whether to file an appeal or bring an action on an incomplete factual basis. If the taxpayer opted for legal action (and the associated consulting and court costs), there was (only) from this point on also a right to inspect files pursuant to §§ 3 and 4 of the German Civil Code (BGB). § 78 FGO.

III. Legal situation after the entry into force of the GDPR
Since May 25, 2018, the General Data Protection Regulation has been directly applicable in the member states of the European Union. These regulations are supplemented in the area of German tax law by the provisions of the German Fiscal Code (Abgabenordnung). Of particular importance in the present context is Art. 15 DSGVO in conjunction with Sections 32c et seq. AO.
Accordingly, there is a right to information from the tax authority as to whether and which personal data it processes. In addition – which is particularly relevant here – there is a right to a copy of this data. From this, a de facto right to inspect files in taxation proceedings vis-à-vis local tax offices is derived not only from legal literature, but also from two tax courts. This applies not only to natural persons, but also to corporations and associations of persons.
For example, both the Saarland Regional Tax Court (FG Saarland) in its decision of April 3, 2019 (Case No.: 2 K 1002/16) and the Saxony Regional Tax Court (FG Sachsen) in its decision of May 8, 2019 (Case No.: 5 K 337/19) affirmed a fundamental right to inspect files in the context of an external audit or tax audit. However, the exact scope of the right to inspect files is still unclear, as the Saxony Regional Court in particular does not extend the right to inspect files to data “generated” by the tax authorities themselves. In addition, the interpretation of possible grounds for denying access to records is still poorly illuminated. This applies, for example, to the case when it can be assumed that the taxpayer could adjust the nature and extent of his tax cooperation obligations to the level of knowledge of the tax authority by providing the information (Section 32a (2) no. 1 c AO). Clarification is likely to be achieved in the future by increasing the number of requests for inspection of files.

IV. Practical advice
According to Art. 12 para. 3 GDPR, the right to information must be fulfilled within one month. If this claim is not met, legal recourse is available to the tax courts without the need for prior appeal proceedings (Sec. 32i (9) AO). The fact that this can lead to quick decisions on file inspection requests is shown by the current decision of the FG Saxony of May 8, 2019 (Ref.: 5 K 337/19). The corresponding application was (only) filed on February 4, 2019, so that the fiscal court decision was issued just under three months later.

V. Conclusion
As a result of the GDPR in conjunction with the provisions of national tax law, there is now, for the first time, also a right to inspect files in taxation proceedings. Such access to information is also in line with the general Union law principle of respect for the rights of the defense, as the express decision of the ECJ of November 9, 2017 (Case: C-298/16 – Ipsas) has shown, at least for the area of VAT law (as Union law). This right should be exercised in particular before filing an action before the tax courts in order to gain a better understanding of the legal and factual considerations of the tax authority early in the taxation proceedings. The equality of information and thus of weapons enables an effective and targeted dispute with the position of the tax authorities and, if necessary, prevents cost-intensive withdrawals of action. There are still some uncertainties regarding the scope of the right to information and the interpretation of the grounds for refusal. However, the current decisions cited above show that it can be worthwhile to go to the tax courts. If necessary, a meaningful and effective exchange of information with the tax authorities can also be achieved by simply referring to the right to inspect files and the relevant rulings.
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