It is not uncommon for spouses to fail to realize that gifts to each other may be subject to gift tax. Not immediately apparent, for example, is the possible gift tax liability of payments into a joint account, the assumption of loan or insurance installments, or the payment of taxes by one of the spouses. In many cases, however, gifts are tax-free due to the personal allowance (500,000 euros for all gifts within ten years) or tax exemptions (e.g. for a family home).
If the spouses do not report a taxable gift to the tax office within three months, they face criminal liability for tax evasion upon discovery. Then, in addition to the gift tax, interest on evasion must also be paid.
An escape into the tax limitation period by merely waiting is hardly possible, since the limitation period for assessment only begins to run when the tax office has learned of the gift or the donor has died. At an interest rate of 6% per year, the evasion interest can reach a significant amount and even exceed the gift tax owed.
One possibility to “repair” “unsuccessful” gifts, which are taxable, is the so-called “Güterstandsschaukel”, which is basically structured as follows: The couple cancels the community of gains by marriage contract. This gives the spouse with the smaller increase in assets a claim against the other spouse for equalization of the gain. This compensation claim is not taxable. Any gifts made to the spouse with the lower increase in assets can be offset against this equalization claim and are therefore also not taxable. The spouses can then switch back to the marital property regime of community of gains (“swing”).
It is undisputed that the gift tax claim expires retroactively. The courts have not yet ruled on whether the retroactive abolition of gift tax also means that tax evasion and the obligation to pay interest on evasion no longer apply.
The ruling of the FG Hessen dated 7.5.2018, 10 K 477/17
The FG Hessen rejects both in its ruling of May 7, 2018: Although the gift tax expires in the context of the equalization of gains with effect for the past, this does not eliminate either the tax evasion that has occurred or the evasion interest that has accrued.
The ruling was based – in abbreviated form – on the following facts: In 2000, the husband gave the wife a cash sum of 1,800,000 euros as a gift. The gift was not reported to the tax office. In 2014, the spouses revoked the marital property regime of the community of accrued gains and offset the gift against the equalization claim. After the facts from 2000 were discovered in 2015, the tax office assessed evasion interest for 147 months in the amount of 213,334 euros (the expired gift tax would have amounted to 290,250 euros).
Criminal liability for tax evasion by omission
In the opinion of the FG Hessen, the spouses committed tax evasion with conditional intent.
by omission: Since they had not reported the gift, the gift tax had not been assessed in time. The tax evasion had already been completed at the time when the tax office would have announced a hypothetical gift tax assessment if the donation had been reported in time. The expiration of the gift tax claim with effect for the past does not render the tax evasion null and void.
The court’s reasoning is not convincing: the decisive factor for the success of the tax evasion is whether or not the materially owed tax was assessed in time. Due to the retroactive effect, a material tax claim actually never existed here. Even according to the case law of the BGH, which as a criminal court – unlike the FG – is ultimately responsible for the criminal law assessment, a change in the facts with tax effect for the past can eliminate the success of the tax evasion that has occurred.
Interest on evasion
In the starting point, the FG Hessen correctly assumes that interest on evasion depends on the substantive tax claim because it serves the purpose of skimming off the interest advantage from the beneficiary of the tax evasion. However, this accessoriness does not apply without restriction, which the FG demonstrates with examples. These examples demonstrate that the right to interest on evasion does not depend on the assessment of the tax by the authority. Why interest on arrears can be charged even though the substantive tax claim does not actually exist remains unanswered in the decision.
Recommendations for practice
The appeal against the decision of the FG Hessen was admitted but not filed. It remains to be seen whether other courts will follow the statements of the FG Hessen.
In the context of cleaning up “unsuccessful” gifts, the property swing can still be an effective and permissible means to at least make gifts between spouses free of gift tax retrospectively (even after discovery by the tax office).
However, if the gifts made have not been properly reported to date, there is a risk of criminal prosecution and the assessment of interest for evasion.
The risk of criminal prosecution of facts that are not yet time-barred under criminal law can be eliminated from the outset by disclosure to the tax authorities. Any existing duty of disclosure on the part of notaries must be taken into account with regard to the appropriateness of a property regime swing and the time of disclosure.
In case of doubt, an appeal should be lodged against tax evasion notices. The burden of proof for the existence of tax evasion lies with the tax authority. As a rule, however, there is no evidence that the spouses have (conditionally) intentionally or recklessly evaded gift tax: because the factual and legal situation is already ambiguous, or because the spouses – like 89% of German citizens according to a study commissioned by a federal ministry – assume that everything acquired during the marriage belongs equally to both partners. Moreover, contrary to the present decision of the FG, we see with regard to Section 29 para. 1 Inheritance Tax Act, there are good arguments for the retroactive elimination of criminal liability and interest on evasion. In terms of criminal law, the retroactive lapse of the tax claim can at least be an objective reason for the cancellation of a penalty or a weighty criterion for the assessment of a penalty.
The experts in our practice group will be happy to advise you.
tel: +49 40 3609945086
tel: +49 711 781923-433
tel: +49 89 15986061598
Munich Site Manager
Head of Criminal Tax Law
tel: +49 89 59976061652
tel: +49 89 59976061028
79100 Freiburg im Breisgau
tel: +49 761 76999910
Head of Criminal Tax Law
tel: +49 40 360994 5081
tel: +49 211 4155597150
© 2023 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a public limited company under German law and a member of the global KPMG organisation of independent member firms affiliated with KPMG International Limited, a Private English Company Limited by Guarantee. All rights reserved. For more details on the structure of KPMG’s global organisation, please visit https://home.kpmg/governance.
KPMG International does not provide services to clients. No member firm is authorised to bind or contract KPMG International or any other member firm to any third party, just as KPMG International is not authorised to bind or contract any other member firm.