Uniform and Separate Assessment (einheitliche und gesonderte Feststellung): Purpose, Effect and Remedies

• The uniform and separate assessment (einheitliche und gesonderte Feststellung) is a self-contained procedure in which the tax bases for several participants are determined uniformly and separately from their individual tax returns.
• It applies above all to partnerships (Personengesellschaften), for instance a GbR, OHG or KG.
• The assessment notice (Feststellungsbescheid) is a basic notice (Grundlagenbescheid) and is binding on the individual income tax assessment notices of the participants – objections to the amounts determined must be directed against the assessment notice itself, not against the later income tax assessment notice.

What is the uniform and separate assessment (einheitliche und gesonderte Feststellung)?

The uniform and separate assessment is a self-contained administrative procedure in which the tax office determines the tax bases – in particular income – jointly and bindingly for several participating persons, before those amounts feed into their respective personal tax returns.

• Uniform: "uniform" means that the assessment applies equally to all participants.
• Separate: "separate" expresses the fact that it is made in a procedure of its own, detached from the individual assessment of each person.

The purpose of this procedure lies in the efficient and consistent treatment of matters in which several persons have an economic interest. Rather than each tax office at the place of residence of the individual participants assessing the same matter – for example the profit of a partnership – separately and possibly differently, it is determined once centrally and bindingly for all participants. This reduces administrative effort and prevents contradictory decisions by different tax offices on one and the same matter.

Typical cases of application are partnerships such as the GbR, OHG or KG, in which the jointly generated profit is first determined at the level of the partnership and subsequently allocated to the individual partners, as well as property-owning associations (Grundstücksgemeinschaften) or communities of heirs (Erbengemeinschaften), in which several persons jointly generate income. The procedure also regularly applies to two-tier partnership structures or to investment funds with several investors.

The effect of the uniform and separate assessment on the individual tax return is that the share of the profit (or loss) determined in each case is automatically adopted into the participant's personal income tax assessment notice, without that participant being able to reopen the underlying tax bases for discussion in their own assessment procedure.

Example: if a GbR with three partners holding equal interests generates a profit of EUR 90,000, the tax office first determines uniformly for the partnership that a profit share of EUR 30,000 is attributable to each partner. These EUR 30,000 are subsequently adopted automatically into the respective personal income tax return of the three partners, irrespective of the tax office at which they are individually assessed.

What effect does the assessment notice (Feststellungsbescheid) have?

In legal terms, the assessment notice is structured as a basic notice (Grundlagenbescheid) within the meaning of § 171 Abs. 10 AO and therefore has binding effect for the subsequent derived notices (Folgebescheide), in particular the income tax assessment notices of the individual participants. This means that the determinations made in the assessment notice – for instance as to the amount of the profit share or the category of income – are binding for the individual assessment and are not examined again on their merits at that stage.

In concrete terms, the effect is that the tax offices responsible for the individual participants must adopt the amounts shown in the assessment notice into the respective income tax assessment without further examination. If the assessment notice is subsequently amended, for example as a result of a successful appeal or a tax audit (Betriebsprüfung), the affected income tax assessment notices of the participants must be adjusted accordingly – even where those notices have already become final and unappealable. This adjustment is made automatically by way of the procedural amendment provision of § 175 Abs. 1 Satz 1 Nr. 1 AO, without any need for a separate appeal against the income tax assessment notice.

What has to be observed in the uniform and separate assessment?

In practice, the correct response to the assessment notice frequently determines whether subsequent tax disadvantages can be avoided.

• Examine the notice carefully: the assessment notice should be checked immediately upon receipt for the completeness and accuracy of the profit or loss shares allocated, since later corrections by way of the personal tax return or an appeal against the income tax or corporation tax assessment notice are ruled out.
• Keep an eye on the deadlines: the one-month period for lodging an appeal begins as soon as the assessment notice is notified to the partnership or to the authorised recipient (Empfangsbevollmächtigter) – not only upon receipt of one's own income tax or corporation tax assessment notice, which merely adopts the assessment.
• Appoint an authorised recipient: in the case of partnerships with several partners, it is advisable to appoint a joint authorised recipient at an early stage, so that notices and deadlines are coordinated centrally and no participant inadvertently misses a deadline.
• Consider the effects at partner level: since amendments in the assessment procedure automatically feed through to all individual assessments, it should be examined, before agreeing to an assessment notice, how that notice affects each individual partner for tax purposes, in particular where personal tax rates differ or where special business assets (Sonderbetriebsvermögen) are involved.

Anyone who observes these points from the outset avoids the most common pitfall in the assessment procedure: a delayed response to an incorrect notice, because the actual error only comes to light in the income tax or corporation tax assessment notice, at which point it can no longer be corrected.

How can errors in the uniform and separate assessment be challenged?

Since the assessment notice is binding as a basic notice, errors must be challenged exclusively by an appeal against the assessment notice itself – an appeal against the subsequent income tax or corporation tax assessment notice is ineffective in this respect, because that notice merely adopts the assessment automatically.

The appeal must be lodged with the competent tax office in writing or electronically within one month of notification of the assessment notice. In principle, every person affected by the assessment is entitled to lodge an appeal, although in the case of partnerships a joint authorised recipient frequently acts for all partners. If the deadline is missed, an amendment of the final and unappealable assessment notice can only be considered under the narrow conditions of the correction provisions of the Fiscal Code, for instance in the case of obvious inaccuracies under § 129 AO or of facts that subsequently come to light under § 173 AO. In both cases, the amendment is considerably more difficult to achieve than an appeal lodged within the deadline, which is why a prompt examination of the notice upon receipt is decisive.