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:
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:
What does that mean in specific terms?
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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 Johannes Fein (Certified Specialist for Tax Law) 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 69 76 75 77 80).