Enforcement of Tax Liabilities

The mere hope of being able to secure contracts in the near future that would enable the taxpayer to meet its tax obligations does not constitute sufficient grounds for a stay of enforcement on tax payments.

The Cologne Fiscal Court heard the case of an advertising agency that had filed a petition for a stay of enforcement of its tax debts. Due to poor market conditions, the managing director and shareholders had decided to establish a human resources and management consulting firm in the future. They were confident they could settle the back taxes within six months. Their application was denied, which is why they turned to the court to enforce their request. However, the tax judges also did not rule otherwise.

Requirements for a stay of enforcement

A prerequisite for a stay of enforcement by the court is that the applicant conclusively sets forth the claim from which the request is derived and the reason for the relief sought. He had identified the claim. There also appeared to be grounds for an order, as a swift preliminary injunction seemed necessary to reduce additional burdens on the company during the transition to the new business model. However, the applicant failed to demonstrate with a preponderance of probability that the factual requirements were met. This is because he had not presented any evidence suggesting that the back taxes would be paid off in the short term. He merely expressed a vague hope of securing lucrative contracts. No concrete improvement in the applicant’s liquidity situation was apparent. He was also criticized for having violated his tax obligations to a significant extent and over a period of years. This was the cause of the accumulation of substantial tax debts. In addition, he failed to remit sales tax for an extended period and consistently filed the corresponding sales tax returns late.

Conclusion: Unreliability in fulfilling tax obligations severely undermines credibility. And the mere hope of lucrative contracts is not enough to convince the tax authorities to wait and see.