Tax Adviser Power of Attorney

What is a tax adviser power of attorney?

Tax adviser power of attorney (German: Steuerberatervollmacht) refers, in a financing and transaction context, to the declaration by which a company authorises a named third party to obtain information and documents from its tax adviser. At the same time, it releases the firm from its duty of confidentiality to that extent; it is therefore also called an information power of attorney (Auskunftsvollmacht) or a release declaration (Entbindungserklärung). The recipients are, for example, investors, prospective buyers, banks or advisers who need reliable financial figures for a financing or a sale.

In everyday usage, the same word also refers to a second declaration: the power of attorney to represent, by which a company authorises its tax adviser to represent it before the tax office. The two declarations have different recipients and purposes and do not replace each other. The information power of attorney is used above all in preparing financing rounds, in company sales and in credit reviews, when business documents are to come directly from the firm.

Duty of confidentiality as the starting point

Tax advisers are bound to confidentiality under Section 57(1) of the German Tax Advisers Act (Steuerberatungsgesetz, StBerG); the unauthorised disclosure of another's secrets is a criminal offence under Section 203 of the German Criminal Code (StGB). Without a release, the firm may therefore give information to no third party, not even to an adviser who evidently acts in the client's interest. The release is granted by the client, in the case of a GmbH (German limited liability company) by the management on behalf of the company. What matters is the representation rule entered in the commercial register: with sole representation, the signature of one managing director suffices; with joint representation, those authorised to represent sign together.

The power of attorney is a unilateral declaration of the company. A signature of the firm or of the recipient is not required; the declaration is presented to the firm. The release extends only as far as its wording; the wording determines the scope and limits of the information.

Scope and limits

A carefully worded power of attorney specifies four points:

• Recipient: the authorised person or company, if possible by name, where appropriate including its staff.
• Documents and information: for example business management evaluations (monthly short reports from bookkeeping), trial balances (overviews of all bookkeeping accounts), annual financial statements, tax assessment notices or reports on tax audits, and whether oral explanations are included.
• Purpose and duration: for example the preparation of a particular financing round, limited until its completion or until a date.
• Exclusions: no representation before tax authorities, no receipt of payments, no authority to instruct the firm.

The power of attorney permits the passing on of existing documents, but it does not oblige the firm to prepare new evaluations. The company commissions such services separately and pays for them under the engagement agreement. Personal data, for example payroll accounts of individual employees, is expediently excluded or passed on only in aggregated form.

Revocation and expiry

Power of attorney and release can be revoked at any time with effect for the future. The revocation is expediently communicated to the firm in text form and brought to the recipient's attention. If the power of attorney is limited in time or tied to a purpose, it ends without a separate revocation, for example on completion of the transaction.

Power of attorney for representation in tax matters

The power of attorney for representation under Section 80 of the German Fiscal Code (Abgabenordnung, AO) authorises the tax adviser to act for the company before the tax authorities, for example to submit tax returns, make applications and file objections. For tax advisers, the law presumes proper authorisation (Section 80(2) AO). The sample power of attorney of the Federal Chamber of Tax Advisers (Bundessteuerberaterkammer), agreed with the tax administration, is widely used; in it the individual powers are selected separately.

The firm keeps the signed original and transmits the power of attorney data electronically via the power of attorney database of the Federal Chamber of Tax Advisers to the tax administration. On this basis it can, among other things, retrieve assessment data electronically. This power of attorney regulates only the relationship with the tax office; it does not entitle the firm to pass on documents to investors or buyers.

Notification of tax assessments

Whether tax assessments go to the company or to the firm is regulated by a separate point of the power of attorney, the power of attorney to receive notices (Empfangs- or Bekanntgabevollmacht). The tax office can notify assessments to an authorised representative (Section 122(1) AO); if an express power of attorney to receive notices exists, it generally sends them to the firm. This is important because the one-month period for objections begins with notification (Section 355(1) AO). If assessments go to the company and are not forwarded in time, the period can expire unused.

Significance in a financing round and due diligence

Investors and buyers examine whether the figures in the business plan and data room match the bookkeeping. Documents that come directly from the firm are the most reliable source for this, because they correspond to the status of the tax returns and annual financial statements. A power of attorney issued early therefore speeds up the build-up of the data room and the answering of follow-up questions in due diligence. In a vendor due diligence, the reviewers commissioned by the seller obtain access to the documents in this way.

If a group consists of several companies, for example in a holding structure, the release must be declared for each company. A power of attorney from the parent company does not cover the documents of the subsidiaries.

Practical example

A GmbH in IT services with two managing directors, each with sole power of representation, is preparing a financing round. The transaction adviser needs the monthly management accounts of the last 24 months, the trial balances of the last two financial years and the annual financial statements of the last three years. One managing director signs a power of attorney that names the adviser as recipient, lists these documents, excludes representation before the tax office and is limited until completion of the round.

The firm provides the documents within a week. The annual financial statement for the most recently ended financial year has not yet been prepared; because the power of attorney does not oblige the firm to do so, management commissions the firm separately with an earlier appointment. When an investor requests payroll data via the adviser, the firm releases only an anonymised overview by department, because personal payroll accounts are excluded from the power of attorney.

Distinction from related terms

• Engagement agreement (Mandatsvertrag): regulates the services and fees of the tax adviser. The power of attorney does not change it and creates no additional service obligations.
• Data processing agreement: is concluded with service providers bound by instructions. The tax adviser, by contrast, acts as an independent controller within the meaning of data protection law; the passing on to third parties is regulated by the power of attorney.
• Power of attorney for representation under Section 80 AO: authorises the firm to act before the tax office. It does not authorise information to investors or buyers.
• Confidentiality agreement: obliges the recipient to treat the documents received as confidential. It complements the power of attorney but does not release the firm from its confidentiality.

Common mistakes

• Scope too wide. A blanket power of attorney without exclusions can be understood as a power of attorney for representation or an authorisation to make payments.
• Recipient not named. The firm cannot check to whom it may give information and rightly remains cautious.
• Signature does not match the representation rule. If a person without authority to represent signs, the release has not been validly granted.
• Subsidiaries forgotten. Every company in the group needs its own declaration.
• Late issue. If the power of attorney is issued only when investors request documents, the process is delayed at a point visible to everyone.

Frequently asked questions

Who has to sign the tax adviser power of attorney?

Whoever may represent the company under the representation rule entered in the commercial register. Anyone with sole power of representation can sign alone; with joint representation, the managing directors sign together or in the registered combination.

Does the firm have to answer every request from the recipient?

No. The power of attorney permits information to the agreed extent but creates no obligation to prepare new documents. Which services the firm provides depends on its engagement.

Does the power of attorney authorise representation before the tax office?

No, unless it expressly provides for this. For representation in tax matters, the company issues its firm a separate power of attorney under Section 80 AO, which operates only between company, firm and tax office.

What happens to documents after a revocation?

They remain with the recipient, who must protect them under the confidentiality agreement (NDA) and return or delete them under its rules. The revocation applies only to future information.

The Roemer Capital view

In our mandates, we use a unilateral power of attorney under which the tax adviser may provide us with business documents: management accounts, trial balances and annual financial statements. Tax representation is not included. The power of attorney is revocable and is signed in accordance with the registered representation rule; with sole representation, one signature suffices.

We obtain the power of attorney at the start of the mandate, together with the request list for the data room, so that the figures for the financial model and business plan come from the bookkeeping from the outset. Tax questions remain with the company's tax adviser; Roemer Capital is not a tax advisory firm and does not appear before the tax office.