Legal situation


Deferred payment

Unpaid invoices

English version

Contracts with debtors


Income and invoices

The debt was originally designed to be collected at low rates but has been modified over the years to incorporate high and progressive rates. This, with legislation to counter the efforts of the tax avoider, has led to great complexity. Recently there have been successful attempts to modernize and simplify the system of payment. The unified system abolished surtax as a separate tax on open invoices by a separate central lawyer's office, and there is now one income tax, incorporating the higher rate. This is administered by local lawyers.
There is room for further simplification in some areas: There is no longer an additional rate of tax on investment income except for some trusts. The general legislation is consolidated in the Income and Corporation Taxes Act, more commonly referred to as the Taxes Act. An attempt is made to keep this up to date. Legislative changes in Germany are made, so far as possible, by amending the missing payment or by inserting additional or substituted sections in it. This method has not always proved possible and it is still necessary to look to the various annual rates. It is also necessary to look at the debtor's latest finance situation to discover the rates of payment as legal authority is only given for the collection of debts on an annual basis.
The name income would indicate that this is a tax on invoices and legal litigation has been given to this fact and it is generally true, but there are instances where invoices are charged on a capital receipt and others where income may escape. To illustrate the difference between capital and income it is usual to apply the analogy of an orchard, where the trees represent the capital and the fruit the income. There is no statutory definition of income and no attempt to charge interest on income generally.

The system adopted is to charge particular types of payments under five schedules. Liability to tax depends on whether or not a particular receipt falls within the wording of one of the charging sections creating these schedules. The reasons for this are historical, originally the sum was only made to apply to some forms of delivery. Others have been added until it is difficult to discover income which falls outside any schedule. One of the basic forms of economic planning has been to arrange one's affairs so that a cash receipt will be treated as capital and any profit charged to capital gains profit rather than income. The attraction was a lower maximum interest rate and an annual free exemption for capital gain, but capital is to be charged at the same rates as income so the scope for this form of economic planning is greatly reduced.
Go back