The usual title for this feature is “Silly German Regulations, Part Whatever” but this one isn’t silly at all.
As you may have read, Germany has something of an unemployment problem. One of the responses has been to encourage self-employment. The jargon phrase is “Ich AG”, which is roughly “Me Ltd”. Theoretically, the newly self-employed can get all sorts of support for starting out: financing, advice, reduced bureaucracy. It’s a laudable effort, particularly as one of Germany’s standing problems has been its comparative inefficiency in business formation.
But the new entrepreneurs also take on all the obligations of a business, including VAT. And there’s the rub.
A friend and colleague of mine, we’ll call her Friend AG, reports that the local Finanzamt, the local tax collection office, is engaging in a practice that looks an awful lot like state extortion.
Here’s how it works. The Finanzamt estimates how much VAT Friend AG owes for a particular quarter. Friend AG has to pay that amount by a deadline set by the Finanzamt. So far, so reasonably unobjectionable. What’s actually happening, though, is that the Finanzamt has been estimating Friend AG’s turnover, and thus Friend AG’s VAT obligations, at five to 10 times the real turnover. She’s thus liable for five to 10 times the VAT that she actually should be paying. She can appeal the figure, but she has to pay the inflated figure, which the Finanzamt holds until the appeal is ajudicated. And the kicker is that if she does not pay the inflated figure by the deadline, she’s judged to be late in her payments and thus liable for a 10 percent penalty, even if the Finanzamt has wrongly estimated what she owes. This penalty cannot be recovered even if the amount is successfully appealed.
So the Finanzamt gets too much money, holds it for too long, and keeps a penalty even if it has been wrongly assessed. How bout them apples.
On the other hand, perhaps Friend AG should be happy that her assessments are coming in at only five to 10 times what they should be. With a system like that, the Finanzamt has every incentive to set the assessments 50 to 100 times too high and let the money roll in.
To say nothing of strangling fledgling businesses with bureaucratic entanglements and cash flow constrictions. What a way to reduce unemployment.