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Nexia Ebner Stolz


Voluntary disclosure of tax evasion – it’s getting more expensive and more complicated

The de­bate about the volun­tary dis­clo­sure of tax eva­sion and its ex­cul­patory ef­fect is not li­kely to end anytime soon gi­ven the pro­mi­nent ca­ses that have re­cently come to light. In fact, it may be one of the is­sues that the Grand Co­ali­tion ad­dres­ses right away and enacts into law, even as early as the se­cond half of this year ac­cor­ding to se­veral po­li­ti­ci­ans.

Once again, the cen­tral ques­tion is whe­ther to com­ple­tely ab­olish the pos­si­bi­lity of dis­clo­sing past tax sins to the fis­cal aut­ho­ri­ties and the­reby avoid pu­nish­ment or whe­ther at a mi­ni­mum to se­ver­ely re­strict the cir­cum­stan­ces in which volun­tary dis­clo­sure can be used.

Re­pre­sen­ta­ti­ves from the fe­deral and state fi­nance mi­nis­tries are due to meet in March 2014 for in­tense de­bate on this is­sue. De­tails of this task force’s work were re­leased re­cently.

First, the good news: The task force re­com­mends pre­ser­ving the op­por­tu­nity to volun­ta­rily dis­close tax eva­sion with ex­cul­patory ef­fect. Un­der cur­rent law, tax­pay­ers are re­qui­red, and if ne­cessary can be com­pel­led, to no­tify the tax aut­ho­ri­ties in tax pro­cee­dings of any in­for­ma­tion re­le­vant to de­ter­mi­ning the amount of ta­xes they owe. This is ent­irely re­ason­able from the per­spec­tive of the rule of law. Howe­ver, when tax­pay­ers pre­sent com­plete and cor­rect in­for­ma­tion, this can ea­sily lead to con­clu­si­ons about ear­lier in­stan­ces of tax eva­sion. In view of the fact that peo­ple go­ver­ned by the rule of law are pro­tec­ted from self-in­cri­mi­na­tion and are not re­qui­red to par­ti­ci­pate in pro­ving their own guilt, such sweeping du­ties to coope­rate are only ju­sti­fied if the op­por­tu­nity for volun­ta­rily dis­clo­sing wrongdoing goes hand in hand with an of­fer of pro­tec­tion from cri­mi­nal pro­se­cu­tion. This as­pect is rou­ti­nely igno­red in pu­blic de­bate when re­fe­rence is made to the uni­que na­ture of the volun­tary dis­clo­sure of tax eva­sion in Ger­man cri­mi­nal law and the al­le­ged pri­vi­le­ging of tax eva­ders it ent­ails. For un­like any other of­fen­ders, de­lin­quent tax­pay­ers are ob­li­ga­ted to make con­ti­nual de­cla­ra­ti­ons about the ob­ject of their mis­con­duct in the con­text of lengthy ad­mi­nis­tra­tive pro­cee­dings.

Of course, the re­qui­re­ments for ex­cul­patory volun­tary dis­clo­sure are ex­pec­ted to be­come much stric­ter. One item un­der con­side­ra­tion is ex­pan­sion of the look-back pe­riod from its cur­rent five years to ten years, which me­ans that, in or­der to be ex­empt from pu­nish­ment, tax­pay­ers would have to com­ple­tely cor­rect their re­turns for all as­sess­ment pe­riods not yet sub­ject to the sta­tute of li­mi­ta­ti­ons. At first glance, this seems un­der­stan­da­ble. Howe­ver, it does raise some ques­ti­ons. Do the pro­vi­si­ons of tax law that go­vern the cal­cu­la­tion of time li­mits also ap­ply for cri­mi­nal law pur­po­ses? Is a re­fe­rence to the tax law pro­vi­si­ons suf­fi­ci­ent for mee­ting the cla­rity re­qui­re­ments of cri­mi­nal law? One con­cern is that this type of an ex­pan­sion of the look-back pe­riod will make ef­fec­tive volun­tary dis­clo­sure vir­tually im­pos­si­ble in many ca­ses. Ima­gine the dis­co­very of a cor­po­rate tax ano­maly from 2012 for which in­ten­tio­nal mis­con­duct can­not be ru­led out. If the re­cord is cor­rec­ted by filing an amen­ded re­turn with ex­cul­patory ef­fect, re­cords from the ten pre­vious years would have to be me­ti­cu­lously scree­ned in or­der to rule out the pos­si­bi­lity of cri­mi­nal pro­se­cu­tion. Any­body with even the sligh­test idea of what such a re­view ent­ails in prac­tice can guess that this is im­pos­si­ble. Con­trary to what many po­li­ti­ci­ans seem to be­lieve, the world is not made up ex­clu­si­vely of vir­tuous pay­roll tax­pay­ers on the one hand and ow­ners of un­de­cla­red bank ac­counts in tax ha­vens on the other.

Ano­ther item being con­side­red is mo­di­fi­ca­tion of the 5% pe­nalty that must be paid on de­lin­quent tax lia­bi­li­ties of 50,000 euro or more per of­fense if a tax­payer wis­hes to avoid cri­mi­nal pro­se­cu­tion. A re­duc­tion in the ex­emp­tion li­mit, a sli­ding scale of pe­nal­ties ba­sed on the amount owed, and an in­crease in the pe­nalty are being dis­cus­sed. There is talk of as­ses­sing pe­nal­ties at a rate of 2% to 10%, with the lat­ter being con­side­red for eva­sion amoun­ting to 1 mil­lion euro or more. One cri­ti­cism on this point is that tax­pay­ers al­re­ady owe the pe­nalty re­gard­less of whe­ther the tax ad­van­tage that be­ne­fi­ted them was long-term in na­ture or just a short-term ad­van­tage that was re­ver­sed as soon as they sub­se­quently fi­led their in­put VAT re­turns.

There is a ray of hope from a busi­ness per­spec­tive. Con­sul­tan­cies (see no­vus bri­sant June 2013) and busi­ness as­so­cia­ti­ons have been ve­he­ment sup­por­ters of trea­ting tax re­turn cor­rec­tions, par­ti­cu­larly those con­cerning VAT and pay­roll ta­xes, as de facto volun­tary dis­clo­sure, and now the tax aut­ho­ri­ties also seem to think this ma­kes sense. Un­der cur­rent law, volun­tary dis­clo­sure of tax eva­sion has an ex­cul­patory ef­fect only if all omit­ted or in­cor­rect in­for­ma­tion wi­thin the look-back pe­riod is fi­led or cor­rec­ted. Now, the task force is pro­po­sing to treat the sub­se­quent filing of omit­ted in­for­ma­tion or cor­rec­tions as par­tial volun­tary dis­clo­sure with ex­cul­patory ef­fect.
In con­clu­sion, if the task force pre­vails, tax­pay­ers will still be able to use volun­tary dis­clo­sure of tax eva­sion as a path back to tax com­pli­ance. Howe­ver, it is highly li­kely that the con­di­ti­ons for ta­king ad­van­tage of volun­tary dis­clo­sure will be­come much more re­stric­tive in the fo­re­see­able fu­ture. The­re­fore, any­body wis­hing to take ad­van­tage of volun­tary dis­clo­sure in its cur­rent form in or­der to avoid pu­nish­ment is well ad­vi­sed to act soon.

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