In Germany the voluntary disclosure of tax evasion has become more restrictive and costly with effect from 01 January 2015. The rules apply to natural persons as well as to legal persons. The changes to the voluntary disclosure programme are therefore highly relevant for groups of companies with German subsidiaries or branches.
A voluntary disclosure of tax evasion can be made to avoid punishment with regard to the tax evasion.
However, the failure to file a valid voluntary disclosure can lead to serious consequences. One practical example is the case of the president of FC Bayern Munich, Mr. Uli Hoeneß, who was sentenced to 3.5 years in prison on a charge of tax evasion after having filed an insufficient voluntary disclosure (among other offences).
Scope of the voluntary disclosure of tax evasion
The impunity extends only to the person who makes the voluntary disclosure, not to the persons aiding and abetting in the tax evasion. The voluntary disclosure itself can be made by the taxpayer himself or by a representative with a specific power of attorney.
The disclosure programme applies to all undeclared taxable items of the same kind of tax, eg income tax, VAT, inheritance and gift tax. It does not provide impunity from all criminal prosecution, especially for administrative offences and criminal acts committed in the course of tax evasion, eg forgery of documents, embezzlement and abuse of trust, money laundering etc. The taxable items have to be subject to German tax.
If the voluntary disclosure is not validly performed, the tax authorities and criminal prosecution are entitled to and will prosecute the tax crime or tax offence taking into account any information voluntarily disclosed. This is the case irrespective of any fine or any payment made under the disclosure programme.
Legal requirements of the voluntary disclosure of tax evasion
The following disclosure requirements have to be met to obtain impunity. Less restrictive requirements apply in cases of understatement of tax through gross negligence, which usually cannot be established regarding the normal circumstances of tax evasion.
… voluntary disclosure of all undeclared taxable items
The person who submits the voluntary disclosure of undeclared taxable items has to disclose any and all undeclared taxable items of the same kind of tax. This means that a full disclosure of all undeclared taxable items has to be made. The full disclosure has to be sufficiently detailed to allow a fast and correct assessment based on the voluntary disclosure.
Since 2011 impunity will not be granted if only a partial disclosure of undeclared taxable items has been made. Since 01 January 2015 a partial disclosure of VAT and wage tax is possible if monthly advance tax declarations for VAT or wage tax are corrected in the annual tax return.
… for the last ten calendar years
From 1 January 2015, the full disclosure of all undeclared items has to comprise all tax crimes/offences which are not time-barred and have been committed within the last ten calendar years. (Previously, only tax crimes/offences committed within the last five years had to be reported unless the crime/offence was particularly serious then the time period extended to ten years. In practice the voluntary disclosure was often made for the last ten years due to uncertainty as to whether the requirements of a particularly serious crime were met. This is why the time period has now changed.)
… repayment of evaded taxes and interests at the rate of 6% per annum
In addition to the full disclosure, the evaded taxes and interests at the rate of 6% per annum have to be repaid within a reasonable period of time set by the tax authorities.
… extra fines for tax evasion exceeding the amount of EUR 25,000
If the evaded taxes exceed the amount of EUR 25,000 per tax crime since 2015 (previously the threshold was EUR 50,000 per tax crime) or in particularly serious cases, an extra fine under the disclosure programme has to be paid to obtain impunity. The extra fines have been increased with legal effect since 1 January 2015 and amount to:
- 10% of the evaded tax if the amount of evaded tax does not exceed EUR 100,000;
- 15% of the evaded tax if the amount of evaded tax exceeds EUR 100,000 but not EUR 1,000,000;
- 20% of the evaded tax if the amount of evaded tax exceeds EUR 1,000,000.
… conditions for exclusion
Impunity will not be granted if any condition for exclusion exists. These conditions for exclusion are especially if the tax crime/offence has already fully or partially been detected by the tax authorities and the taxpayer was aware of this or should have expected this upon due consideration of the facts of the case or if a public official at the revenue authority has already appeared for the purpose of carrying out a tax audit or of investigating a tax crime/offence.
Conclusion and practical significance
The circumstances of each particular case need to be carefully examined when filing a voluntary disclosure of tax evasion as minor deviations from the requirements will result in the invalidity of the voluntary disclosure in its entirety - with criminal and costly consequences.