The liability risks of tax advisers in tax planning are often underestimated. The statutory rights of tax advisers when advising on legal issues are restricted under German Law. Wrongful advice by tax advisers may constitute a right of claim by third parties.
It is one of the main duties of a tax adviser to advise a client on optimizing his or her tax position in merger and acquisition situations. However, the liability risks of giving wrong advice are severe and are not limited to a liability towards the client (‘inter partes’) but may extend to damages incurred by third parties. Some third parties fall within the protection of the retainer agreement between tax adviser and client.
In a decision dated 18th of February 2016 (file number IX ZR 191/13) the Federal Tax Court was concerned with the liability of a tax adviser who failed to duly consider the fact that a merger between a partnership and a limited liability company gave rise to a stamp duty for a property of land transferred to the German limited liability company (GmbH). Upon due consideration, there would have been ways for the tax adviser to avoid such taxation on the property transaction. Although the tax adviser was mandated only by the shareholders of the GmbH, the Tax Court awarded a claim made by the GmbH against the tax adviser. The Court held that the GmbH was to be granted protection under the contractual relations between the tax adviser and the company shareholders.
Tax advisers concerned with such matters are well advised to look into the terms and conditions of their retainer agreements in order to restrict any such liability against third parties as far as possible. However, any such restrictions are hard to make waterproof as most retainer agreements are subject to the statutory rules on general terms and conditions protecting first and foremost consumers. In legally complex transactions, it is in the interest of a tax adviser to take legal advice and perhaps join up with the legal profession with a view to advising clients on mergers and acquisitions jointly.