Voluntary self disclosure of tax evasion

Penalty exempting voluntary self disclosure

(The following text refers to the legal status after the amendment of the law on voluntary self-disclosure as of 01.01.2015. Since the field of law is currently subject to frequent changes - also thanks to the case law of the 1st Senate of the Federal Court of Justice (BGH) - in particular here neither topicality nor completeness of the explanations can be guaranteed. Therefore, the following applies even more than usual: The information on this homepage can in no way replace advice and/or representation by a lawyer).

The voluntary declaration only has an exempting effect if it is made before the time at which the tax evasion is discovered and the perpetrator is aware of this or had to expect the discovery in a reasonable assessment of the facts. If an audit order has already been announced or an official of the tax authority has appeared for the tax audit, it is too late (Section 371 (2) no. 1 lit. a, c AO).

However, since the notice of the audit order only has to be given by simple letter (and not by postal delivery certificate), it is doubtful whether the newly introduced ground for blocking the notice of the audit order will prove effective in practice (cf. Kemper, NZWiSt 2012, 56 et seq.). It is also likely to prove problematic that the new regulation will make it impossible for most subsequently audited entrepreneurs (generally large companies, corporate groups and internationally affiliated companies) to make a voluntary disclosure in the future (cf. Kemper loc. cit.).

An exception applies to reckless tax evasion. In this case, a voluntary declaration is possible up to the point in time at which the initiation of criminal or fine proceedings for the offence has been announced. An unsuccessful voluntary declaration may be considered a mitigating factor.

Pursuant to Section 371, Paragraph 2, No. 3 of the German Fiscal Code (AO), a voluntary disclosure also has no penalty-relieving effect if the tax evaded or the unjustified tax advantage obtained exceeds an amount of 25,000 euros per offence. However, pursuant to Section 398a AO, prosecution of a tax offense is waived in this case if the perpetrator pays the evaded taxes (just as in Section 371 (3) AO) and pays a surcharge in favor of the state treasury. The surcharges are graduated with thresholds at 100,000 and 1,000,000 euros from 10 to 15 to 20 percent.

The self-disclosure must be comprehensive and correct in order to have the penalty-exempt effect. If taxes have already been reduced, they must be paid within a certain period. The voluntary declaration must include all tax offenses of one type that are not subject to the statute of limitations, but at least all tax offenses of the last ten calendar years.

The question of how the voluntary declaration of a taxpayer is to be assessed who, in addition to his own tax evasion, was also involved in "similar" tax evasions by other taxpayers is still unresolved (Wegener, SteuK 2012, 328351). This would be problematic, for example, if a GmbH managing director made a voluntary disclosure for the company he managed, but at the same time concealed private tax evasions of the same type of tax or those of another company he managed (cf. Wegener loc. cit.).

The new regulation of voluntary disclosure by the German Act to Combat Clandestine Money is considered to be so complicated that "even the best advisor could no longer reliably forecast to his client the occurrence and circumstances of the exemption from punishment" (Beckemper/Schmitz/Wegner/Wulf, wistra 2011, 281 et seq.). Moreover, in its ruling of June 25, 2011, the Federal Court of Justice laid down quite strict requirements for a correction "in full" within the meaning of Section 371 of the German Fiscal Code (AO). A voluntary disclosure is already unsuccessful and loses its penalty-exempt effect if the amount actually evaded deviates from the amount resulting from the voluntary disclosure by more than 5%. In the example cited by the Federal Court of Justice, a total of 100,000 euros was actually evaded - the voluntary disclosure is invalid if less than 95,000 euros was declared through it. However, the 5% limit only applies in cases where it cannot be assumed that the voluntary declaration was intentionally too low. In his opinion, it would not be compatible with the "complete return to tax honesty" demanded by the Federal Supreme Court if the taxpayer deliberately made an incorrect voluntary declaration, even if it was a minor deviation.

The recent amendment of the law on self-disclosure as of 01.01.2015 has created further problem areas, the effects of which will only become apparent in the coming months. However, it should not be concealed at this point that the new regulations (or the return to old regulations) concerning sales tax and wage tax are welcome.