Obligation to notify gifts and acquisitions by reason of death

Are you aware that there is a duty of disclosure for gifts and acquisitions by reason of death in accordance with Section 30 of the Inheritance Tax and Gift Tax Act (ErbStG)?

This duty of disclosure is an essential aspect of the tax treatment of inheritances and gifts and must be made within a certain period of time. Failure to comply with the duty of disclosure or exceeding the deadline can have serious consequences. Furthermore, failure to do so often leads to more work and increased costs. You should therefore comply with the obligation to notify in good time.

Why is there a duty of disclosure?

You only have to submit a comprehensive inheritance tax return or gift tax return when requested to do so by the tax office. However, so that the tax office knows whether or not it needs to request a tax return, there is an obligation to notify the tax office of inheritance/gift transactions independently and without prior request.

The notification gives the tax office an initial rough idea of the tax-relevant facts and on this basis, it can assess whether or not there is a tax liability. If a tax liability is likely, the tax office will request an inheritance/gift tax return.

Which transactions do you have to report?

According to Section 30 ErbStG, all transactions (taxable and non-taxable) that are subject to inheritance and gift tax must be reported to the tax office, e.g:

• any gift or acquisition related to an inheritance,
• any claimed compulsory portion of a disinherited person entitled to a compulsory portion,
• so-called “mixed gifts”, i.e. when an increase in assets is not matched by an equivalent consideration, e.g. the sale of a property to a relative below its value.

Who is obliged to report?

• In the case of inheritance: the acquirer, i.e. the person who receives the pecuniary benefit.
• In the case of inheritance with several heirs: the notification can also be made jointly.
• In the case of gifts: the transferee and the donor. The donor and the donee should therefore agree on who should make the notification.

To whom must the notification be made?

It is important that the notification is made to the tax office with local and material jurisdiction. Regarding subject matter jurisdiction, the notification must be made to the “Inheritance and Gift Tax Office” of the locally competent tax office.

Please note
With regard to local jurisdiction, it should be noted that there are special jurisdictions for inheritance and gift tax. For example, the Kaufbeuren tax office is responsible for inheritances/gifts in the Munich area. The tax office responsible for income tax is therefore often the wrong addressee. A notification to the income tax office is therefore not sufficient.

What should the advertisement contain?

The notification should contain the relevant key data of the acquisition. A corresponding form can be downloaded from the homepage of the Bavarian tax offices. The contents of the notification include, for example:

• Name, address and tax identification number of the parties involved,
• the family relationship
• the date of death or the date of the gift,
• the legal basis (e.g. inheritance / gift / legacy),
• the object and approximate value of the acquisition and
• details of any previous acquisitions, as these can be very relevant for assessing whether tax is likely to be payable.

If the value is not clearly quantifiable (monetary gift), a detailed valuation of the assets concerned (e.g. property) is not yet required. However, you should indicate value-forming factors that provide information about the value – if known. Otherwise, the tax office will not be able to make a meaningful assessment and, in case of doubt, will request a comprehensive tax return.

Please note
The information provided in the report must be correct, as false information – as well as a failure to report – can constitute tax evasion.

When can you refrain from filing a report?

There are certain cases in which you can refrain from filing a report:

• If notification of the acquisition has already been made by another party.
• If the gift has been notarized by a notary and reported to the tax office. However, you should check for yourself whether a notification has been made to the “Tax Office – Gift Tax Office”. This is usually evident from the contract.
• if the acquisition is based on a will that has been “opened” by the probate court. However, as there are numerous exceptions (e.g. if a property is part of the acquisition), there is still often an obligation to notify.

Note
Generally, before you fail to make a notification, you should make sure that the obligation to notify does not actually exist.

Caution if the tax-free amounts are subsequently exceeded

In principle, the obligation to notify exists even if no tax is due because the tax-free amounts have not been exceeded or the acquisition does not trigger tax for other reasons. However, if the notification is omitted in such cases, this is generally irrelevant because no tax is due anyway. However, you should be sure that the transaction does not trigger inheritance/gift tax.

Please note
You must pay close attention to previous acquisitions within the last ten years, as acquisitions within ten years are added together for tax purposes. Even if the last gift is (significantly) below the tax-free amount, there may still be an obligation to notify because the tax-free amount has been exceeded in the sum of several (previous) gifts.   

By when must the notification be made?

The notification must be made within three months of becoming aware of the acquisition. This deadline must be strictly adhered to, as otherwise the tax office could assume an (attempted) tax reduction/tax evasion.

It is not always entirely clear when knowledge is to be assumed.

• In the case of succession without a will, knowledge generally exists when one has knowledge of the death and the main features of the family relationship.
• In the case of succession by will, knowledge is generally only present when the will has been opened by the probate court.
• In the case of a gift, the date of execution of the gift is generally decisive for the start of the period.

Note
In practice, laypersons should initially assume the earliest possible date of knowledge for the start of the deadline. If you want to deviate from this, the start and end of the deadline should be checked by a specialist instead of risking exceeding the deadline.

What are the consequences if you fail to comply with the duty of disclosure?

A breach of the duty of disclosure may constitute a tax offense if it prevents the tax office from assessing any inheritance/gift tax due. Under no circumstances should you take the duty of disclosure lightly. After all, ignorance is no defense against punishment. It is therefore not always possible to claim that the breach of duty of disclosure was a mere oversight.

The specific consequences of a breach of the duty of disclosure can vary. It is possible that the tax office will not sanction a breach at all. However, measures such as evasion interest, penalty payments or surcharges are also possible. In the case of actual tax offences, fines or (in extreme cases) even prison sentences are also possible.

What do you have to do if you have failed to report tax liability?

If the notification was not made or the deadline was exceeded even though a tax was triggered, you should carefully consider how to proceed.

• Submit the notification later. However, this can be dangerous because the tax office may assume that you have committed a tax offense simply by missing the deadline.
• Submit a so-called “voluntary disclosure”. However, this only has the effect of exempting you from prosecution if the tax office gains full knowledge of all the facts relevant to the tax assessment for the first time through the “voluntary disclosure”.

Due to the potentially serious consequences, you should seek advice from an expert immediately in the event of a breach of the duty of disclosure under Section 30 ErbStG, especially if you are considering submitting a “voluntary disclosure”. As the preparation of a “voluntary disclosure” is considerably more time-consuming and very cost-intensive and at least a penalty surcharge can be imposed despite a “voluntary disclosure”, it is strongly advisable to properly comply with the simple duty of disclosure within the three-month period. This can save you unnecessary costs, trouble and worry. 

Conclusion

Failure to comply with the duty of disclosure under Section 30 ErbStG can have serious consequences. Even if the notification is omitted due to an oversight or negligence, this is usually at least associated with annoyance, costs and increased effort for you. In this case, you should not simply make up for it, but have an expert check what the safest course of action is in the specific situation. You shouldn’t let it get that far in the first place.

To summarize: It is better to submit three too many notifications that are not required under Section 30 ErbStG than one too few. This is because submitting a notification in accordance with Section 30 ErbStG is not a big deal, but eliminating the consequences of failing to submit a notification often is.