The filing of incorrect or incomplete tax returns as a result of which taxes are understated constitutes a criminal offence (tax evasion, Steuerhinterziehung) if done intentionally and an administrative offence (gross negligent understatement of tax, leichtfertige Steuerverkürzung) if done gross negligently. The requirement of intent also includes conditional intent, i.e., that the offender considered it possible that the information is incorrect or incomplete and could lead to an understatement of taxes for the company but acted anyhow.
Tax evasion by an act (as opposed to omission) is a so-called "everybody-offence". This means that the offence can be committed by any person, regardless of their position in the company or their obligations towards the tax authorities. The offender can therefore be anyone who makes incorrect or incomplete statements relevant for tax purposes. This includes the legal representatives of a company, i.e., the managing directors, as they have the obligation to fulfill the tax obligations of the company. However, any other person who caused faulty factual information to be transmitted to the tax authorities can also be a potential offender, e.g., external consultants or employees. To determine the potential offenders and therewith individuals at risk, it should be clarified internally who was in contact with the tax authorities and provided incorrect or incomplete information. Even if the filings were only made by the managing directors, the individuals assisting with the preparation of the returns may still qualify as accomplices (Mittäter) or assistants (Gehilfe). If the managing director had no intent, other individuals in the information chain may even qualify as sole offender (indirect perpetration, mittelbare Täterschaft).
Tax evasion by way of omission (in particular non-filing of tax returns but also if the taxpayer realizes that a tax return filed by them or on their behalf was incorrect and could lead or has led to an underpayment of taxes but fails to inform the tax authorities without undue delay) can only be committed by the taxpayer respectively the legal representatives of the company as they have to fulfill the tax obligations.
Criminal investigations are initiated in the event of a suspicion of an actionable tax offence. Furthermore, the department for criminal and administrative fines (Bußgeld- und Strafsachenstelle) is generally entitled and obliged to initiate criminal investigations after the receipt of a self-disclosure (which are designated or recognizable as such) to verify if the disclosure provides full protection.
No, there is no minimum threshold.
Criminal intention is required. If done gross negligently, it is an administrative offence (gross negligent tax evasion, leichtfertige Steuerverkürzung; Sec. 378 GTC).
Criminal investigations may still be initiated. In fact, if the tax authority recognizes the amended tax return as self-disclosure, they are obligated to submit the matter to the department for criminal and administrative fines (Straf- und Bußgeldstelle) which will then initiate criminal investigations. If the self-disclosure is valid and there was no "blocker", the perpetrator is exempt from criminal or administrative punishment and the investigation will be terminated.
Yes, the prosecutor is entitled to prosecute criminal tax offences like tax fraud, i.e., the intentional understatement of tax according to section 370 German Fiscal Code (Abgabenordnung, "GFC"). Tax fraud includes, in particular, the filing of incorrect or incomplete tax returns resulting in an understatement of tax which constitutes a criminal offence (tax fraud, "Steuerhinterziehung"; Sec. 370 GFC), if done intentionally. The requirement of intent also includes conditional intent, i.e., that the offender considered it possible that the information is incorrect or incomplete and could lead to an understatement of tax but acted anyhow. Criminal tax proceedings are usually initiated as soon as there is an initial suspicion that the person concerned committed a tax offense. In case of suspicion of an intentional tax fraud, the investigating authority in fact is legally obliged to initiate investigations ex officio.
Usually five years and, in serious cases of tax fraud, 15 years.
The statute of limitation period starts with the completion of the act or omission. In cases of tax fraud by acting (e.g., intentional filing incorrect tax returns) this is the case upon receiving the tax assessment notices or with submitting a tax declaration. Unless a tax assessment notice is issued, in case of tax filing, upon the date on which the filing was due and in case of omission, upon the date on which a tax assessment notice is normally issued.
Intentional tax fraud may be punished by a monetary fine or imprisonment for up to five years (up to 10 years for serious cases).
Yes. According to the published opinion of the German tax authorities, a tax compliance management system can at least serve as indication that there was no intent or gross negligence (although it does not exempt from a review in each individual case). Further, according to the Federal Court of Justice, an existing efficient compliance management system can at least result in a reduction of the penalty.
Yes, there is a self-disclosure program. It entails exemption from personal charges for the participants in the self-disclosure. The first key condition for a valid self-disclosure is sufficient information to enable the German tax authorities to determine the correct amount of tax solely from the self-disclosure information, i.e., without carrying out major own investigation. Thus, a full description of tax-relevant facts for all tax offences for all open years (at least the last 10 years) is necessary.
Under certain circumstances the self-disclosure does not exempt from criminal punishment (blockers). This is the case if:
- prior to the filing of the voluntary disclosure, a tax audit has been announced to the person involved, his representative, the beneficiary or the beneficiary's representative;
- the person involved has been notified of the initiation of criminal or administrative fine proceedings;
- a public official from the tax authority has already appeared for the purpose of carrying out a tax audit or for the purpose of investigating in a tax crime or tax-related administrative offence;
- the tax crime had already been fully or partially detected;
- the understated amount of tax per deed exceeds EUR 25,000;
there is a serious case of tax fraud.
Yes, in connection with a valid self-disclosure. If no self-disclosure was filed or the self-disclosure is not valid, full payment of tax may still reduce the sentence or even lead to a waiver of punishment.
13. Does criminal prosecution of a tax offence have an impact on the tax authorities' statute of limitation period?Yes, the announcement of the initiation of criminal investigations interrupts the statute of limitation. Interruption means that the statute of limitation starts anew after the interruption.
Yes, the announcement of the initiation of criminal investigations interrupts the statute of limitation. Interruption means that the statute of limitation starts anew after the interruption.
Yes. The assessment of tax and any enforcement measures are unrelated to any criminal investigations. However, in the event of a tax audit, the tax auditors may only continue with a tax audit once the initiation of the criminal investigations has been announced to the relevant individuals. Further such individuals would then have the right to remain silent and would not need to respond to audit inquiries.
Requirement for a tax fraud is the understatement of tax. Thus, in the event that a settlement with the tax authorities can be reached, this should include the agreement that there was no understatement of tax. In addition, under certain conditions, it is also possible to settle with the public prosecutor on the setting of the proceedings.
Just individuals.
Foreign employees / directors may also be prosecuted. However, the tax office may take into account that a foreign employee is less likely to understand particularities of German tax law and may thus be less strict with respect to the initiation of criminal investigations.
The mere non-payment of tax is not a criminal tax offense. Where an employee / director commits a tax offense and is sentenced with a monetary fine, the individual is liable for such amounts. However, the Company is liable for the amount of understated tax.
Yes, criminal investigations have been increased over the last years in particular related to financial institutions (in respect to the so-called Cum-Ex-cases) as well as in relation to VAT. Furthermore, due to the acquisition of so-called tax-cds from Switzerland has led to an increase of criminal investigations against individuals holding bank accounts in Switzerland. However, even in transfer pricing matters, tax auditors try to threaten with the initiation of criminal proceedings in order to achieve a better tax audit result. However, such threats are rarely put into action.