Liability under Section 71 AO: Perpetrator Liability Instead of Chain-Wide Denial

“Should have known” suffices for Section 25f of the German VAT Act. For Section 71 of the Fiscal Code, it does not.

Section 71 of the German Fiscal Code (AO) is the sharpest personal liability provision in German tax law: whoever commits tax evasion, or participates in it, is liable for the evaded taxes and interest. In VAT chain cases the provision is now deployed broadly — against managing directors, authorised officers, sales managers, sometimes against anyone who ever touched an invoice. And yet, read correctly, this provision contains one of the strongest defence positions in the entire field. Section 71 AO is perpetrator liability: it presupposes an intentional offence, established in the person of the individual held liable, and it compensates a damage instead of multiplying it. Precisely these elements are missing in most chain cases — which is why critical scholarship has pointed to Section 71 AO for years as the systemically correct instrument that should replace, not supplement, the sprawling denial practice under Section 25f of the German VAT Act (UStG).

What Section 71 AO requires — and what the offices often skip

Liability under Section 71 AO is doubly accessory. First, offence-accessory: there must be a tax evasion — objectively and subjectively, that is, with intent — and the person held liable must be its perpetrator or participant. A tax-law “should have known” is precisely not enough: the EU Kittel standard, under which negligence-type elements can already justify denying input VAT deduction and exemption, is not proof of intent. German criminal tax literature draws the line sharply: risk selection in tax law must not become a presumption of guilt in criminal law; whoever infers “should have known” from a supply chain has not yet established intent in the person of a specific human being. Second, claim-accessory: the liability follows the tax claim in existence and amount. If the primary claim falls — because the denial is shaky on the merits or its amount rests on cascade arithmetic — the liability falls with it.

Add discretion: the liability notice is issued under Section 191 AO as a discretionary decision. The authority must justify why it takes recourse against this participant, in this amount, and in what relation to other joint and several debtors. Notably, even voices from the prosecution side accept that the Section 71 claim is no automatic reflex of the offence but a distinct discretionary decision — and that the liability claim itself cannot be confiscated as if it were an asset.

The Reiß solution: liability compensates, denial punishes

The doctrinal point comes from Wolfram Reiß’s fundamental critique of Section 25f UStG: where taxes are evaded in a chain, the appropriate instrument against those implicated is liability for the evaded tax — Section 71 AO — not the denial of input VAT deduction and exemption at several stages simultaneously. The difference is not academic but arithmetic: liability is capped at the actual tax damage and lapses when another joint debtor pays. The Section 25f denial cascade knows no such cap in administrative practice — Reiß calculated how an evasion of €190,000 grows into additional tax revenue of €1,187,000 through multiple denials. Vobbe/Pötters likewise conclude on proportionality grounds that liability for the tax loss would be “entirely sufficient” and that chain participants may be treated at most as one body of joint debtors. For the defence this means: where the administration cumulates denial and liability, the multiple assessment along the chain itself becomes the target — the treasury may recover a damage, not profit from it.

The CJEU line 2024–2025: liability yes — but with exculpation and proportionality

The European case law has recently expanded the liability track — with hard edges and with levers. Three decisions frame the position. The Court of Justice accepts joint and several liability rules under Article 205 of the VAT Directive even without limiting them to the person’s own contribution — but insists that no strict, no-fault liability may arise and that the person concerned can exculpate himself by proving he took every measure that could reasonably be required (Dranken Van Eetvelde). It permits the cumulation of input-VAT denial at one link and liability at another — but expressly only insofar as their application does not violate the principle of proportionality in the individual case (KONREO). And it lets liability survive even where the actual tax debtor has ceased to exist as a legal entity — but only where it is established that the person held liable knew or should have known that the debtor would not pay the tax (Vaniz). Three times the same pattern: liability grows, but it remains tied to proof, exculpation and the prohibition of excess. A documented control system — provable diligence instead of retrospective assurances — is therefore the central exculpatory evidence on the liability track as well.

Relationship to Section 25f UStG: two instruments, one damage

Systemically, two forms of state access face each other. Section 25f UStG denies the rights attached to an outwardly regular transaction — triggered already by “should have known”, effectively uncapped in amount, applicable several times within one chain. Section 71 AO holds the perpetrator liable — intent-bound, damage-capped, discretion-controlled. Administrative practice likes to combine both: denial against the company, liability against the individuals, an asset freeze to secure it all — triple pressure on the same economic substance. The defence must pull these apart: for the denial, the authority bears the burden of proving objective circumstances of knowledge or means of knowledge; for Section 71 liability it must additionally establish an intentional offence in the person concerned; for both, the proportionality of the aggregate burden applies. Since late 2025 a tactical warning also applies: Germany’s Federal Fiscal Court has held that after a Section 69 notice is set aside, the authority may switch to Section 71 AO — whoever defeats one liability norm should already have built the defence against the other. On the criminal flank — what the wording of Section 25f UStG means for any intent allegation — the blocking-effect analysis continues the argument.

Confiscation, payment, extinction: the side ledger of the double track

Whoever defends against Section 71 AO rarely defends against the tax office alone. In parallel, prosecutors secure the same economic substance through asset freezes and confiscation — and this creates coordinates the defence can actively use. The most important: payment works twice. Where the tax claim is extinguished by payment — including payment by a liability debtor — the basis for confiscation lapses to that extent; the state may not collect the same amount twice. Conversely: an assessment, a freeze or even a fiscal-court judgment is not yet extinction — confiscation continues alongside until actual payment. Whoever plans payment sequences, releases and deposits strategically, instead of serving each authority in isolation, prevents the double blocking of the same money. And even prosecution-side commentary draws one line: the Section 71 liability claim is itself not a confiscable asset — there is no cascade of “liability upon liability”. The result is a matrix of claim, security, payment and extinction that must be actively maintained in every major case: it decides whether liquidity remains for the defence or evaporates in parallel seizures.

Defence lines against a Section 71 notice

The defence sequence mirrors the construction of the norm. Have the principal offence defined — which specific evasion, which period, which tax, by whom? Sweeping chain narratives do not suffice; even in tax law the CJEU requires the constituent elements of the evasion to be identified precisely. Test intent in personam — what did this person know at that time, evidenced by what? Attribution of knowledge across organisational chains does not replace individual findings. Dissect the amount — liability covers the actually evaded tax plus interest; cascade amounts, double counting and positions already settled do not belong in it. Audit the discretion — selection among several participants, credit for payments by other joint debtors, aggregate-burden calculation. Stop enforcement — objection plus suspension of enforcement, because a Section 71 notice, too, is otherwise enforced before anything is decided.

The VSK team of German attorneys and tax advisers runs this examination as one line — coordinated with the company’s defence, the criminal case and liquidity protection. Because Section 71 AO is perpetrator liability. Whoever is not a perpetrator should not pay like one.

Update July 2026: accessories are not liable forever

In a judgment of 21 April 2026, the Federal Fiscal Court clarified that a person who merely participated in tax evasion can no longer be held liable by notice once the underlying tax claim is time-barred for collection — the exception in sec. 191(5) sentence 2 of the Fiscal Code applies, by its wording, to perpetrators only. For the defence this means: in every sec. 71 case, limitation of the primary debt is the first thing to examine — for mere aiding, it can end the matter.

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