Tax compliance (i.e. the observance of and adherence to tax laws) is a subset of general compliance and is not only of interest to the management of business corporations in Germany. Nonprofit organizations like charities and trade organizations must also address compliance issues specifically related to the observance of German (nonprofit) tax rules. This is because they too have an organizational duty to avoid violations of the law and other rules (e.g. those arising from the articles of association or rules of procedure). Be it to maintain their special status as a tax-exempt charity or to comply with tax declaration obligations as a cooperative or a trade organization.
As a rule, the larger an organization, the greater the risks of tax errors and damage to the organization. Such risks cannot be effectively controlled without a tax compliance management system tailored to the individual nonprofit organization.
Often, it is more difficult than initially expected to deal with all tax obligations. And sometimes communication with the tax authorities does not go as smoothly as planned.
Good tax compliance, in particular the establishment of a tax compliance management system (TCMS), not only helps to avoid negative surprises in terms of taxation, but also effectively serves to prevent the personal liability of those responsible. After all, the fiscal authorities in Germany are not particularly tolerant in tax matters. As a rule, tax liability directly affects the legal representatives of nonprofit organizations, i.e. typically the board of directors or the management. Those responsible must then use their private assets to account for the tax damage caused if they are not adequately insured.
Further advantages of a tax compliance management system:
- Minimization of tax risks and protection of the nonprofit, tax-exempt status
- More efficient and therefore more cost-effective processes in the fulfilment of tax obligations, such as the preparation of tax returns and annual financial statements
- Clear responsibilities of all persons involved
A tax compliance management system (TCMS), similar to an "ordinary" compliance management system, aims to ensure that the responsible persons and other employees in a nonprofit organization behave in accordance with the regulations - but it is specifically geared towards the tax obligations and rules to which the organization is subject.
A good tax compliance management system, just like an ordinary compliance management system, consists of seven main components:
- Tax compliance culture, i.e. starting at management level, all other employees should also develop a common understanding of the need to comply with tax obligations.
- Tax compliance objectives, such as
- Ongoing identification of taxable business operations and differentiation from other tax-free spheres of a tax-exempt organization (like asset management and the promotion of the entity's charitable purposes) prior to commencement of the respective activity
- Correct VAT treatment of sales and the provision of services in the various tax spheres of the organization and especially between group companies as well as of governmental grants and membership fees
- Securing the tax-exempt status by observing all tax and legal requirements for nonprofit organizations
- Appropriate compensation of the management personnel in accordance with the requirements of German nonprofit tax law
- Timely preparation and adoption of annual financial statements and submission of tax returns
- Correct issue of donation receipts
- Tax compliance organization, i.e. those responsible for compliance with tax obligations are clearly identified, as well as the work processes they are required to follow
- Tax compliance risks must be systematically identified and assessed
- Tax compliance program to limit tax risks and avoid compliance violations
- Tax compliance communication, i.e. informing all parties involved of their obligations under the tax compliance management system
- Tax compliance monitoring and improvement, i.e. the documentation and ongoing development of the tax compliance management system
What does that mean in specific terms?
- We develop result-oriented, practical and comprehensible solutions
- From A for approval of nonprofit status to Z for zero-rated activities - we provide advice on every NPO topic
- Life time cycle consulting: We advise NPOs in every phase of their life cycle - from foundation, via expansion to dissolution
- WINHELLER worldwide: We coordinate your legal and tax projects
- The more complex the problem, the greater our ambition - no matter what the NPO problem is, we won't break a sweat
- WINHELLER full service and one-stop-shop: We can do so much more than just "nonprofit" and will take care of all things necessary
- A "no" is not a solution for us
Your organization needs support? We look forward to hearing from you at +49 (0)69 76 75 77 80 or email@example.com.
German tax law is complex. Thus, the development of a TCMS requires a lot of thought. And the scope of a tax compliance management system tailored to the individual organization depends on many factors, such as the organization's size, its structure, legal form, fields of activities, whether it is operational or only a supporting organization, etc. Last but not least, the amount of work involved also depends on the nonprofit organization's own (tax) past. The good news: After a thorough analysis of the tax risks, many of the seven points mentioned above can often be implemented with little effort.
In individual cases, for example, the issuing of a condensed tax guideline and regular training of existing staff can already fulfil the requirements of a suitable tax compliance management system. It is therefore possible for any nonprofit organization to set up a tax compliance management system with reasonable effort.
And implementing a system is also highly recommended. After all, every step towards an individual tax compliance management system helps to counter the German tax authorities with good arguments in the event of a breach of tax regulations, thus avoiding tax liability or even averting criminal tax proceedings.
We will gladly help you play by the rules of German tax law and keep your organization fully compliant. We will be happy to draft suitable tax guidelines tailored to your organization or even accompany you on the way to a comprehensive tax compliance management system. With a total of well over 100 years of experience in advising nonprofit organizations, our team of attorneys and tax advisors is the right choice for you.
Do you want to ensure that your organization is always in compliance with German tax regulations? Do you want to set up a tax compliance management system to avoid personal liability and the loss of your organization's tax-exempt status? Your contact persons for all your tax compliance questions are Attorney Uwe Müller (Compliance Officer) and Certified Foundation Consultant and Attorney Alexander Vielwerth. Please do not hesitate to contact us and we will be delighted to assist. The easiest way to reach us is by e-mail (firstname.lastname@example.org) or by phone (+49 (0)69 76 75 77 80).