Ina Reese Tax & Legal Practice – Flensburg | Harrislee

Tax and legal advice from a single source

Law & Taxation Reese Flensburg
22.10.2026
General information
Tax audit, Dual qualification, Articles of Association, Legal advice, Tax advice, Criminal Tax Law, Value Added Tax, Conversion

Many tax implications are not determined in the tax return, but are decided beforehand in the contract. Using examples from company law, corporate restructuring, tenancy law and tax audits, we demonstrate where law and tax go hand in hand.

Tax and legal advice from a single source

Tax and legal advice from a single source: where law and tax go hand in hand

A typical process in many companies: a solicitor drafts the articles of association, whilst the tax adviser handles the bookkeeping and tax returns. Both carry out their work meticulously. Nevertheless, money can be lost precisely where their areas of responsibility overlap. The tax adviser often does not see the contract until it has been signed. The solicitor is frequently unaware of the company’s figures in detail and cannot always assess the tax implications of a particular clause.

Tax implications rarely only arise when filing a tax return. In most cases, they are determined as soon as a contract is concluded, a company is incorporated or a business is restructured. Using examples, we show where legal structuring determines the tax liability, what ‘one-stop advice’ means in practice, and where its limits lie. Anyone wishing to know what a tax adviser and a specialist solicitor in tax law are respectively permitted to do will find this information in our article Tax adviser or specialist solicitor in tax law.

The problem lies at the interface

Tax law is linked to circumstances that have already been legally established: contracts, shareholders’ resolutions, purchase prices and salary agreements. Once these have been laid down and implemented, it is virtually impossible to amend them for tax purposes. As a general rule, the tax authorities do not recognise agreements intended to have retrospective effect, apart from exceptions provided for by law, such as in the case of company conversions. The tax adviser can then only explain what has happened; he can no longer influence the outcome.

A simple example illustrates just how quickly this can happen: two business owners agree on a price of 50,000 euros without making any arrangements regarding VAT. According to established case law, VAT is then deemed to be included in the price in cases of doubt. The seller must pay around 8,000 euros in VAT and is left with a net sum of around 42,000 euros instead of the expected 50,000 euros. Legally, the contract is valid; economically, however, the seller is short of around 8,000 euros.

Incorporation and legal form: deciding on liability and tax together

The choice of legal form is a legal decision with significant tax implications. In the case of sole traders and partnerships, profits are taxed at the owners’ and partners’ personal income tax rates. Trade tax, which is payable by commercial enterprises, is largely offset against income tax (Section 35 of the Income Tax Act (EStG)). In the case of a limited liability company (GmbH), the company initially pays corporation tax and trade tax; the shareholders are only taxed on the dividends they receive. Which form is more favourable depends, amongst other things, on how much profit is to be retained within the company and how high the shareholders’ other income is. General partnerships, professional partnerships and registered civil-law partnerships (GbR) may, upon application, even be taxed as a corporation (Section 1a of the Corporation Tax Act (KStG)).

The legal form alone is not enough. The articles of association set out the rules governing profit distribution, withdrawals, severance payments and succession. Each of these clauses has tax implications. This is particularly evident in the case of a shareholder-managing director of a GmbH:

Salary and bonus: If the remuneration is unreasonably high, the tax office treats the excess amount as a hidden distribution of profits (Section 8(3) of the Corporation Tax Act). It does not then reduce the GmbH’s income and is taxed as investment income in the hands of the shareholder.
Formal requirements: In the case of a controlling shareholder, the remuneration must also be clearly and validly agreed in advance and actually paid in that manner. The tax office will not recognise a pay rise that is only decided upon retrospectively at the end of the year for the preceding months.
Social security: According to the case law of the Federal Social Court, a shareholder-managing director is, as a rule, only exempt from social security contributions if he holds at least half of the share capital or if the articles of association grant him a comprehensive blocking minority, enabling him to prevent instructions with which he does not agree. Agreements outside the articles of association are not sufficient. Legal certainty is provided by a status determination procedure with the German Pension Insurance Scheme (Section 7a of Book IV of the Social Code).

The articles of association, the managing director’s contract and tax matters should therefore all be discussed together. Find out more on our page about Commercial and Company Law.

Restructuring: Law on corporate conversions and tax law relating to corporate conversions

Anyone who transfers a sole trader business into a limited liability company (GmbH), merges companies or spins off part of a business is subject to two pieces of legislation at the same time. The Transformation Act governs the legal process of the restructuring. The Transformation Tax Act determines whether hidden reserves are subject to tax in the process.

In many cases, a conversion can be carried out on a tax-neutral basis at book value, but only upon application and subject to conditions that must already be met at the legal planning stage:

Full transcript: When a business is contributed, all essential assets of the business must, as a general rule, be transferred as well. If, for example, the business premises are left behind, the carrying amount is at risk.
Retroactive effect: For tax purposes, conversions may be backdated by up to eight months (Section 2 of the German Conversion Tax Act (UmwStG), Section 20(6) of the UmwStG). In the case of mergers and demergers, the closing balance sheet submitted with the application to the Commercial Register must also be no more than eight months old (Section 17(2) of the UmwG). The appointment with the notary, the application and the balance sheet must therefore be coordinated in terms of timing.
Embargo periods: If the contributor sells the shares received in exchange for the contribution within seven years, the hidden reserves existing at that time are subject to retrospective taxation, reduced by one-seventh for each year that has elapsed (Section 22(1) of the German Law on the Taxation of Business Reorganisations (UmwStG)). In the case of demergers, a separate five-year period applies to the sale of shares (section 15(2) of the German Transfer Tax Act (UmwStG)).
Land Transfer Tax: If the business owns land, the reorganisation may trigger land transfer tax. Whether an exemption applies depends on the chosen structure.

In addition, there are obligations under employment law, such as informing employees when their employment contracts are transferred. Find out more on our page on Right of conversion.

Contracts with VAT implications

When it comes to VAT, the absence of a contractual clause can cost you money very quickly. Here are two real-life examples.

Commercial tenancy: the VAT option

The letting of commercial premises is, in principle, exempt from VAT. However, if the owner lets the premises to another business owner for use in that business, they may opt to be subject to VAT (Section 9 of the German VAT Act (UStG)). This is particularly worthwhile if they wish to deduct input VAT arising from the construction, purchase or maintenance of the property. For most buildings, this option is only permitted if the tenant uses the premises exclusively for transactions that do not preclude the deduction of input VAT (Section 9(2) of the German Value Added Tax Act). The tax authorities allow a de minimis threshold of five per cent in this regard. This is not usually the case for a doctor’s surgery or an insurance broker.

If such a tenant moves in at a later date, or if the current tenant changes the nature of their business, the landlord may lose part of their input tax. For buildings, the input tax deduction is tracked over a period of ten years (Section 15a of the German Value Added Tax Act (UStG)). The tenancy agreement should therefore stipulate three things: that the rent is payable plus VAT, the purposes for which the tenant is permitted to use the premises, and that the tenant must notify the landlord of any change in their business activities and compensate the landlord for any resulting loss. Find out more on our page about Tenancy law.

Sale of a business: Sale of the business as a whole

If a company or a separately managed business is sold in its entirety to an entrepreneur who continues to run it, no VAT is payable (Section 1(1a) of the German VAT Act (UStG)). If the seller nevertheless charges VAT, they are liable for it under Section 14c of the German VAT Act (UStG), and the buyer cannot deduct it as input tax. Conversely, VAT becomes payable if the conditions for a business transfer are not met after all and nobody had anticipated this. A contract of sale should specify, for both scenarios, who bears the tax and how any subsequent corrections are to be made.

In the general civil law The same applies to any major contract: whether a price is meant to be net or gross must be explicitly stated in the text.

When a tax audit turns into criminal proceedings

A tax audit is, first and foremost, a tax procedure. The business owner must cooperate, provide documentation and answer questions. If, during the audit, suspicion arises of a tax offence, the situation changes fundamentally. The auditor must notify the department responsible for administrative fines and criminal matters and may only continue the investigation with the business owner regarding these facts once they have been informed that criminal proceedings have been initiated (Section 10(1) BpO, Section 397 AO). From this point at the latest, coercive measures are prohibited if they would require the business owner to incriminate themselves (Section 393(1) AO). However, the tax office may then estimate the basis for taxation. Any information the business owner provides at this stage may be used against them in criminal proceedings.

It is particularly during this phase that it pays off if tax arguments and criminal defence strategy are coordinated rather than developed separately by two different law firms. An exception applies if the tax returns in question were prepared by the advising law firm itself: in that case, the firm may be called as a witness during the proceedings, and an independent defence is usually the better solution. You can find out more about this, including voluntary disclosure, on our page at Tax law and criminal tax law.

Disputes and Settlements: Civil Law Meets Accountancy

Even in the case of disputes and outstanding claims, every legal step has tax implications. If a claim turns out to be uncollectible, the VAT must be adjusted (Section 17(2) of the German VAT Act), and companies that prepare financial statements must write down the claim in their annual accounts. If a legal dispute ends in a settlement, it depends on what the payment is for: a payment for services rendered constitutes consideration subject to VAT, whereas genuine compensation for damages does not. The text of the settlement should clearly reflect this and specify whether the amount is payable plus VAT. In the absence of such a provision, the recipient must, in case of doubt, pay VAT on the settlement amount. We describe how we enforce claims, from the first reminder letter through to enforcement, on our page on Credit management.

We explore just how closely employment law and tax are linked – for example, in relation to severance payments, termination agreements and bogus self-employment – in a separate article: Employment law and tax advice under one roof. For information on the handover of a family business, see our article on Business succession in Flensburg.

What „all under one roof“ means in practice

For us, ‘one-stop advice’ does not simply mean that a solicitor and a tax adviser are based in the same office. Ina Reese is a solicitor, a specialist in tax law and a tax adviser, all rolled into one. She has been running her practice in Flensburg and Harrislee since 2000. For clients, this has very practical implications:

One point of contact, one file. There is no need to explain matters twice, nor to cross-check documents between two offices.
Design and calculation at the same time. When we draft a contract, we work through the tax implications of the various options in parallel, rather than waiting until after it has been signed.
Design that is actually put into practice. As we also handle bookkeeping, tax returns and annual accounts on request, we are able to check whether a contract is being implemented in practice as intended – for example, whether the agreed managing director’s salary is actually being paid as agreed.
No break in the event of a dispute. Should an appeal or legal action be brought before the tax court, the client remains with the same solicitor. In criminal tax proceedings, the same applies, subject to the exception mentioned above.
Double duty of confidentiality. As a solicitor and tax adviser, Ina Reese is bound by a duty of confidentiality (Section 43a(2) of the Federal Lawyers’ Act (BRAO), § 57(1) StBerG) and, as a general rule, has the right to refuse to give evidence in criminal proceedings (§ 53(1), first sentence, No. 3 StPO).

Consultations are available in German, English and Spanish.

Where the boundaries lie

A one-stop consultancy service does not mean that a law firm can handle everything on its own. Some limitations are laid down by law, whilst others arise from the nature of the firm’s specialisation:

Notarial certification: The incorporation of a limited liability company (GmbH), the transfer of GmbH shares, amendments to the articles of association, merger and demerger agreements, and property transactions must be notarised. We prepare the relevant documents and coordinate them with the notary’s office.
Areas of law outside our core practice: We provide consultancy services in the areas listed on our Overview of Services … If a question falls outside this scope, we’ll say so openly.
International context: In the case of business dealings or assets abroad, such as in Denmark, we assess the German aspects. A local adviser may also be required to deal with the relevant foreign law.

Checklist: When legal and tax matters need to be discussed together

You are setting up a business or taking on a new shareholder.
A partnership agreement, a managing director’s contract or a commercial tenancy agreement is entered into or amended.
You wish to restructure your business, transfer it into a limited liability company (GmbH) or spin off a part of the business.
You are buying or selling a business, shares in a company or a commercial property.
A tax audit has been announced or is already underway, or the auditor suddenly starts asking different questions.
A legal dispute is to be settled by way of a settlement.
The handover of the business to the next generation is imminent.

Frequently Asked Questions

Is a one-stop consultancy service more expensive than two separate consultants?

Not automatically. The Tax Advisers’ Remuneration Regulations apply to tax returns and bookkeeping, whilst the Lawyers’ Remuneration Act applies to appeals, proceedings before the tax courts and criminal proceedings, regardless of who carries out the work. Different remuneration arrangements are possible. Where separate advisers are involved, however, this creates additional work if both need to familiarise themselves with the same facts and coordinate with one another. We will discuss the billing arrangements before the engagement begins.

Do I need to change my current tax adviser?

No. You can also engage us specifically for a one-off assignment, a tax audit or a dispute. If you wish to entrust us with your ongoing tax affairs in their entirety, you are welcome to do so. We will then coordinate the handover of the previous year’s data in an organised manner.

What is the difference between this and a firm with solicitors and tax advisers?

In a joint practice, people with different qualifications work together. This can work well, but it requires them to liaise with one another on an ongoing basis. In our practice, legal and tax assessments are carried out by the same person.

What documents do I need for an initial interview?

For an initial assessment, the relevant contracts or drafts, the latest annual accounts or tax assessment notice and, where applicable, correspondence from the tax office are usually sufficient. We will clarify what else is required during the initial consultation.

In summary

Many tax implications are determined in the contract, not in the tax return. It is almost impossible to rectify them retrospectively.
The legal form, the articles of association and the directors’ remuneration determine how a company and its shareholders are taxed.
Conversions can only be carried out on a tax-neutral basis if the legal implementation meets the tax requirements.
In the case of commercial leases, business acquisitions and settlements, the wording of the contract determines the VAT liability.
If a tax audit leads to criminal proceedings, the rules change. Tax and criminal assessments must then be coordinated.
Ina Reese is a solicitor, a specialist in tax law and a tax adviser, all rolled into one.

Are you planning to draw up a contract, carry out a reorganisation, or have you received a letter from the tax office? During an initial consultation lasting around 15 minutes, we will discuss what the matter is about and which legal and tax issues should be clarified first. Get in touch now