Corporate Criminal Tax Law and Tax Compliance in Germany

Advice on tax criminal law for companies

You can't make an omelette without breaking eggs: mistakes happen every day, in companies just like anywhere else. Especially the areas of accounting, tax and customs clearance are no exception. As a result, occasions for criminal tax proceedings are not uncommon in larger companies in Germany.

This quickly leads to the question of whether the error is based on criminal energy or was brought to light by a company's internal control system (ICS). The latter can constitute an argument against the assumption that a criminal offence has been committed.

Those responsible face up to 10 years in prison

It is therefore of great relevance to companies whether intent or negligence were involved. The clarification of criminal liability is in fact also linked to the statute of limitations. While it is 3 years for customs duties and 4 years for taxes, the limitation period for the determination of criminal liability is extended to 10 years in the case of tax or customs evasion and to 5 years in cases of negligent tax reduction.

Clarification of the circumstances is important for those responsible within the company, because tax evasion can be punished with imprisonment of up to 5 years in "simple" cases. In the case of tax reductions of over 50,000 euros per offence, a particularly serious case of tax evasion may also be punished with up to 10 years imprisonment.

After detection of errors: simple correction or self-disclosure?

In industrial corporations, even small mistakes can quickly lead to a large scale of tax reductions. Therefore, the distinction between simple correction and self-disclosure is an important, if not vital decision for the affected company managers.

In this context, the tax authorities have recently commented on the distinction between a tax adjustment declaration and a voluntary self-disclosure under criminal law. This is based on section 153 of the German Fiscal Code. Anyone who discovers incorrect tax returns must immediately notify the tax authorities and undertake the necessary corrections.

According to section 371 of the German Fiscal Code, however, anyone who makes complete and comprehensive corrections to all tax offences of the last 10 years will not be punished for tax evasion. This is done by means of a self-disclosure or third-party disclosure that exempts the person from punishment.

Distinction between a false or no tax return

However, it is not always obvious whether false declarations in a tax return are merely an error which is reported to the tax office after discovery, or whether the false declaration in the tax return has already crossed the line leading to tax evasion. This is due to the fact that in both alternatives, i.e. the simple correction as well as the self-disclosure, there is invariably a tax reduction from an objective point of view. Either the declaration is false or no declaration has been made at all.

The distinction between simple correction and self-disclosure is therefore only made when the question of intent comes up:

  • Are there one or more people in the company who knew about the error?
  • Is there any criminal intent, i.e. "knowing about and wanting" a tax reduction? This would result in the obligation to make a voluntary self-disclosure.
  • Is there indeed a previously unknown error that can "simply" be corrected?

How to make a notification of correction

Subsequently, companies are faced with another important question: In which form must the correction notification be submitted? Does the correction have to be designed in such a way that it meets the strict formal requirements of a self-disclosure or is the informal submission of a correction according to section 153 of the German Fiscal Code sufficient?

The tax authorities state that "if the taxpayer has set up an internal control system that serves to fulfil tax obligations, this may be an indication that there is no intent". In such cases the simple correction, which is not bound to the strict formal requirements of a self-disclosure, is therefore generally sufficient.

The regular review of operational processes, e.g. through an ICS, is thus recommended in order to detect and correct errors promptly. Otherwise, there is a risk that once errors have been established, they will be continued in downstream processes, which increases the scope of any notification of correction accordingly. Our experienced attorneys for tax law and criminal tax law will gladly assist you in implementing an ICS in your company or to work through errors that have already been identified.

Our consulting services in German corporate criminal tax law

Matters of criminal tax law can have enormous consequences for companies in particular. For this reason, we are happy to support you with any related questions. These include:

  • Establishment of an internal control system (ICS) or setting up tax compliance structures
  • Preparation of self-disclosures and third-party disclosures
  • Correction of declarations (subsequent declarations)
  • Review of the international movement of goods
  • Resolution of classification and preference issues
  • Advice on foreign trade law issues (export control/BAFA, dual-use regulation, export list, embargoes etc.)
  • Support in criminal tax proceedings and administrative offence proceedings

Your attorney for corporate tax criminal law in Germany

Do you have questions regarding criminal tax law for companies or would you like to submit a subsequent declaration or self-disclosure ensuring legal compliance? Our attorneys for corporate criminal tax law answer those questions, including classification, foreign trade law issues and customs law. Your partners are Attorney Bartosz Dzionsko and Senior Tax Accountant Jürgen Schwendemann. The easiest way to contact us is by e-mail (info@winheller.com) or by telephone (+49 (0)69 76 75 77 80).

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