date | theme

02. May 2022 | Submission to the Federal Constitutional Court – Standards Control Procedure in Tax Law

03. May 2022 | Constitutional complaint – tax law procedure to the Federal Constitutional Court

04. May 2022 | Non-admission complaint to the BFH win: prerequisites – reasoning – revision

26. May 2022 | Suspension of proceedings in the financial process: Legal consequences – Legal protection – Conditions

07. July 2023 | What actually checks the Bundesfinanzhof? (this contribution)

The Federal Fiscal Court can only make financial court decisions within a limited scope of audit by way of revision and therefore does not carry out comprehensive control. The well-known principle is: “The Bundesfinanzhof is not a factual authority”. But what that actually means is often not always clear. We explain what the Bundesfinanzhof checks in the context of a filed audit.

The Bundesfinanzhof (BFH) has only a limited scope of examination, as it is not a factual authority. Therefore, the law in § 118 FGO regulates the reasons for the revision, i.e. what can be disputed in a revision at all. The contested judgment must be based on the violation of federal or state law. The “rest” requires causality.

§ 118 paragraph 2 FGO determines the actual basis of the audit law, i.e. the facts about which the dispute is being fought. The BFH is therefore prevented from examining the facts established by the tax court. Hence the principle of being bound by the actual findings of the Fiscal Court. The Bundesfinanzhof therefore does not carry out an assessment of evidence in principle. Only in exceptional cases does it happen that the BFH also leads the proof. Complaints that go beyond this legally stipulated examination scope are unfounded. It is therefore of particular importance to know to what extent BFH examines.

However, the BFH is not bound by the complaints submitted. Therefore, it reviews the contested decision in principle in the context of its audit competence, so-called principle of full revision.

If the final complaint is admitted by the tax court only on the basis of a procedural deficiency according to § 115 paragraph 2 no. 3 FGO, this nevertheless opens the appeal of the final complaint to the full extent. The plaintiff is therefore not limited to complaining about the deficiency in the procedure giving rise to admission, but can also assert the infringement of substantive law with the appeal. Only if an explanatory memorandum of appeal is reduced to the complaint of procedural deficiencies, the examination scope of the BFH is limited to the alleged procedural deficiencies, if the complaint was not at the same time allowed due to fundamental importance, legal further training or harmonization of case law.

The appeal therefore makes it possible to examine the contested decision in substantive and procedural terms, but not in fact. This standard of control must therefore be applied to the actual findings made by the Fiscal Court in so far as they have been established without breaching the Rules of Procedure.

A general infringement is not enough. Rather, it requires a violation of revisible law, i.e. law that can be examined within the framework of the review. Revisiability is therefore not a question of the admissibility of the revision, but of its justification. In addition to the violation of revisible law, the causality of the violation is also necessary. Moreover, the decision must not be correct for other reasons.

The revision can only be based on the violation of federal or state law. The latter, however, only in the cases of § 33 (1) no. 4 FGO. Federal law, of course, includes federal laws and federal statutes. However, for example, a violation of unwritten law or customary law can also be reprimanded, for example, the principle of good faith.

In addition, the revisible right must be violated. The law is violated if a legal rule has not been applied or has not been applied correctly. Legal application is characterized by the subsumption of a situation under a legal clause. Therefore, four types of errors can occur in the application of the law: on one, errors in establishing facts or in establishing evidence can be reprimanded. Secondly, requests for evidence may have been omitted. In addition, legal norms may have been overlooked or not applied. However, the facts may also have been wrongly classified under a correctly interpreted fact. However, errors in the facts concern factual questions, which the Court of Appeal may examine to a limited extent.

The law can be divided into legal norms of procedural law and substantive law. This distinction becomes particularly important in the revision procedure. According to § 120 paragraph 3 no. 2 letter a) and b of the FGO, the justification of the complaints is subject to differently high requirements. It is necessary to provide concrete facts showing whether the FG made a procedural error. Where a material defect is alleged, the circumstances giving rise to it must be clearly identified.

The tax court has to determine the facts of the case ex officio (§ 76 (1) sentence 1 FGO) and to clarify them until the decision is ready. It shall use all available evidence. The factual determination is the finding, clarifying and collecting the facts essential for the dispute. It must answer the question of what actually happened. The finding of facts is therefore erroneous if the court does not, incorrectly or only incompletely ascertain or assess the individual facts which are relevant to the facts of the applicable rule of law. In the assessment of the relevance of the decision, the substantive view of the FG must be taken as a basis.

If the Finance Court has not made sufficient factual findings in its judgment and the BFH is therefore not possible to finally examine the legal consequences drawn, there is a lack of judgment and therefore a material error. Therefore, the error, in contrast to the procedural error, which must be observed only on special complaint, must be observed ex officio. It therefore leads to the annulment of the contested decision and the referral back of the case, irrespective of the other arguments put forward by the parties. Errors of this kind exist if the factual determination is intrinsically contradictory, unfollowable or incomplete.

An error in the legal clause occurs if a legal standard is not applied or overlooked. The classification of the correctly determined facts under a clearly wrong legal norm is also an error in the legal framework. Probably the most frequent error in the law is the erroneous interpretation of the law applicable to the facts. The BFH may replace an erroneous interpretation of the Finanzgericht with its own interpretation if further determinations made by the courts in this respect are not considered. BFH can make an interpretation omitted by the Finanzgericht if the Finanzgericht has established the necessary facts. BFH is not bound by an error-free interpretation by the Finance Court. Rather, interpretation is at the same time an act of evaluation and does not necessarily lead to the only correct decision.

Technical advice for

Revision?

Infringements within the meaning of § 118 (1) FGO can also be errors made by the tax court in its conclusions, which it draws with regard to the concrete legal consequence from the determined facts and the legal rule gained. This also includes violations of the laws of thought and experience.

The appeal is justified only if the contested judgment is based on the infringement of revisible law. Therefore, the infringement must be the cause of the content of the decision. The judgment should therefore have been different without the infringement. The judgment is therefore not based on a breach of rights if the breach of rights in the judgment concerns only statements (obiter dicta) that are not relevant to the decision. Moreover, it is not based on the infringement of the law if the infringement relates only to a delimitable partial justification, but the reasoning also justifies the decision. Ultimately, as Section 126 (4) FGO shows, the judgment can also be correct for other reasons.

In case of procedural errors, the possibility of a different decision in the case of error-free application of procedural law is sufficient. In the cases of § 119 FGO, it is irrefutably presumed that there is a causal link between the serious procedural deficiencies listed therein and the infringement of the law and therefore the judgment is to be regarded as based on the infringement of federal law.

Since BFH, as a court of appeal, can only review the contested judgment for legal errors, the examination must cover the same starting point as the decision of the tax court. Therefore, the decision must be based on the same facts. Therefore, § 118 paragraph 2 FGO stipulates that the facts are the ones that were presented at the last hearing before the tax court. Accordingly, BFH is also bound by the findings there. Therefore, the factual investigation before the tax courts is of particular importance.

The BFH must therefore not obtain the facts necessary for the examination of the substantive legal question from a source other than the contested one. Consequently, BFH may not make any factual findings of its own or supplement the factual findings made by the tax court. Missing, decisive facts can only be made by the tax court after rejection of the matter. As a result, even interested parties cannot present any new facts and BFH may not take them into account.

Amendments to claims and subpoenas are in principle inadmissible in appeal proceedings. In both cases, however, a new actual claim is regularly introduced into the review proceedings, which would change the basis of BFH’s decision. Of this, § 123 (1) sentence 2 makes an exception for necessary subpoenas within the meaning of § 60 (3) sentence 1 for acceleration of proceedings. Thereafter, a necessary dingo can take place during the revision procedure. However, if the necessary person has a legitimate interest in a further clarification of the facts, the BFH must refer the legal dispute back to the tax court in accordance with § 126 (3) sentence 2.

A further exceptional case is the automatic substitution of the subject-matter of the procedure according to § 68 sentence 1, which also applies analogously to the revision procedure via § 121 sentence 1. According to § 68 sentence 1, an administrative act which modifies or replaces the contested administrative act during the appeal proceedings automatically becomes the subject of the appeal proceedings. This does not require a special request from the appellant.

5.2 Delineation between legal and factual problems

The distinction between legal and factual issues is therefore significant. However, it is particularly difficult. For example, the question of which legal standards are to be applied also determines which facts are significant. The BFH basically reserves itself with theoretical explanations for the delimitation of legal questions and factual questions and decides in individual cases whether there are binding factual findings.

5.2.1. Even actual assessment is considered a matter of fact

Even actual assessments are among the actual findings. For example, the finding of an unexplained increase in assets is a factual finding. The tax court’s conclusion that the increase did not stem from taxed revenues, but from previously unreported taxable income, constitutes an actual assessment. The BFH can only check such factual assessments as to whether they have come about without procedural error, are in accordance with the thought and experience sentences or contain a violation of the arbitrary prohibition.

5.2.2 Examination scope at the Bundesfinanzhof for subjective criteria

With regard to the indices used to prove internal facts, such as the profit intention, a distinction must be made between the legal-normative question of whether the evidence justifies the conclusion on the main fact (= legal application: yield test at the upper level) and the question of whether the evidence actually exists (= fact determination at the lower level). Only the latter factual determination is withdrawn from the BFH.

Legal application begins with the examination of whether the determined and established facts fit under a legal norm. However, BFH often assumes that the conclusion from established connecting facts itself still belongs to the facts. For example, he classifies the classification of a game as gambling or skill play as an established fact. However, only the question of whether a game is provable, can be determined on the basis of tangible circumstances and thus actually. However, classification as gambling or skill play constitutes a normative assessment based on legal criteria. The classification is normative and can only be judged because there are legal criteria. It can therefore only be a legal assessment and thus a legal application. Facts can only be circumstances whose existence can only be proven by the senses and for which no legal criteria are necessary.

In the demarcation, the questions “What has actually happened?” (actual question) and “How is what has happened to be evaluated legally?” (The legal question) offers an indication.

The binding of the court of appeal to the factual findings and assessments of the actual nature of the tax court does not exist without gaps. Rather, the binding is punctually broken. However, it will only be repealed to the extent necessary to take into account the respective facts and their legal effects in the appeal court proceedings. As regards the other factual findings, the bond therefore remains. The binding is limited in case of procedural complaints, i.e. when actual findings have been made in violation of procedural law.

There is no link to such factual findings concerning the prerequisites for judgment. These include, for example, the facts concerning the admissibility of the review procedure itself. In this respect, the BFH must therefore make its own factual findings if necessary. In this respect, a new argument by the interested parties in the review procedure is therefore also possible. The BFH is free to assess the new factual presentation and possibly to take its own evidence. Otherwise, the procedural deficiency leads to the annulment and referral of the case back to the tax court.

Also for reasons of litigation economics, the Court of Appeal may itself establish new facts and give a different assessment of established facts that occurred after the last oral hearing before the Court of Appeal. This applies if the consideration of new facts seems appropriate for the swift and final settlement of the dispute, no legitimate interests of a party are precluded and the new facts can be established without taking evidence.

The complaint belongs to the complainant, who has triumphed fully before the tax court. In the absence of a complaint, he himself cannot appeal – in particular no subsequent revision. However, in order to be able to prevent before the BFH that the erroneous or incomplete actual finding in the tax court judgment could lead to an unfavorable decision for him, he can submit procedural complaints without being bound by deadlines until the end of the oral hearing. But this right belongs to him only insofar as he could not and should not have exercised it already in the factual court. The facts related to the complaint must be established by BFH and, if necessary, established and assessed.

In addition, the link to the findings of the tax court is eliminated if, during the appeal proceedings, operations occur which change the legal situation of the proceedings and thus have a significant effect on the pending proceedings. This may include, for example, the withdrawal of the claim, the declaration of discharge, declarations of jurisdiction and calendar events resulting from the facts of the tax court judgment, such as the maturity of a claim.

If the BFH decides on a request for restitution to the previous status, which the Finanzgericht has rejected, the BFH is not bound by the findings of the Finanzgericht in this regard. Therefore, it can also exploit unestablished facts and evaluate evidence itself.

In summary, the BFH may only examine legal questions. The actual determination of the tax court can only be verified in exceptional cases. It is therefore particularly important to work towards a proper assessment of evidence in the financial court proceedings.