Tax fraud, also called tax evasion, is a criminal offence in Germany regulated by §§ 369 ff. of the Fiscal Code of Germany (Abgabenordnung – AO). The penalty that can be expected for tax evasion, whether committed or attempted, cannot be described in general terms. The fact is that the penalty depends on several factors and must be assessed differently from case to case. Individual sentencing is carried out, in which the court weighs up the circumstances that argue for and against the offender.
This page will outline the law relating to voluntary tax fraud and related penalties in Germany. If you require our legal assistance, please do not hesitate to contact us directly if you require specialised assistance.
Aggravating Circumstances in Tax Evasion Cases
The amount of evaded taxes is of particular importance for determining a penalty. The German Federal Court of Justice (Bundesgerichtshof – BGH) has developed certain thresholds for assessing penalties in tax evasion cases. In cases of evaded taxes of up to 50,000 euros, generally, only a fine shall be imposed.
According to the current jurisprudence of the German Federal Court of Justice, evaded tax amounts of more than 50,000 euros constitute tax evasion on a large scale (BGH, judgement of 27.10.2015 – 1 StR 373/15). Therefore, a fine is regularly no longer considered in these cases. However, a suspension of the imprisonment sentence on probation is undoubtedly possible, provided that it is a sentence not exceeding two years. An imprisonment sentence without suspension on probation is generally considered appropriate for tax evasion of 1 million euros or more.
However, these thresholds are not rigid because the amount of tax evasion is not the only decisive factor for assessing the penalty. Instead, they leave room for evaluating the circumstances of the specific case. Thus, deviations from the BGH’s thresholds may occur due to aggravating or mitigating circumstances.
While the criminal defence will focus on the mitigating circumstances of the specific case, the tax office or the public prosecutor’s office will probably concentrate more on the aggravating aspects. The following are some of the circumstances that can be considered aggravating circumstances:
- Corresponding previous convictions
- Tax evasion over an extended period
- A particularly objectionable way of committing, e.g. by removing evidence or producing incorrect or falsified documents
- The establishment of permanent evasion systems
- Commercially operated tax evasion
- Evading taxes for which the offender is fiduciary responsible
On the other hand, the penalty may not be increased if no subsequent payment of the evaded taxes, i.e. no compensation for damages, has yet been made.
Assessment of Fines
According to § 40 para. 1 p. 1 StGB, a fine is imposed in daily rates. The number and amount of the daily rates thus determine its amount. The daily rates may be at least five and at most 360. In the case of joinder offences, i.e. if different types of tax, different tax periods or different taxpayers are affected by the tax returns in question, a maximum of 720 daily rates cumulative sentence can be imposed.
The offender’s guilt provides the basis for the number of daily rates. Therefore, the amount of evaded taxes and circumstances that mitigate or aggravate the penalty are taken into account.
In practice, there is often an orientation on so-called penalty tables of the criminal case offices of the tax offices, from which the number of daily rates for a certain amount of evaded taxes can be derived. Those penalty tables can differ from state to state, which is why it is essential to find out which numbers can be used in a specific case. A deviation from these tables, both positive and negative, is certainly possible and necessary to take into account the particularities of the individual case.
In addition, the amount of the daily rates must be determined by having regard to the offender’s personal and financial circumstances. A daily rate may be at least 1 euro and at most 30,000 euros. As a rule, the daily rate amount is calculated according to the average daily net income.
The time of conviction is decisive here, not the time of the crime. In practice, the last income tax assessment is regularly used. If the offender does not provide any or only insufficient information on their income, the income, assets and other bases for assessing the daily rate can be estimated (§ 40 para. 3 StGB).
When assessing the amount of the daily rates, for example, maintenance obligations and extraordinary burdens on the person concerned (e.g. illness) must be taken into account appropriately by deduction.
Mitigating Circumstances in Tax Fraud Cases
A whole range of reasons can be considered for obtaining a reduction in a sentence.
Since, per § 46 para. 2 of the German Criminal Code (Strafgesetzbuch – StGB), in particular, the offender’s motives and objectives, the attitude reflected in the offence, the degree of the breach of their duties, the way of committing and the consequences caused by the offence as well as the offender’s conduct in the period following are to be taken into account when assessing the penalty.
However, there is no exhaustive catalogue of mitigating circumstances for cases of tax fraud in Germany. Here are some examples of possible mitigating circumstances.
- Inexperience with the tax system,
- Facilitation of tax evasion by the negligent conduct of the tax office or by not intervening against recognizable tax evasion,
- Tax evasion by delay – That means a merely late tax assessment,
- Termination of tax evasion of one’s own accord,
- An early confession and repentance,
- Active cooperation in the investigation of tax evasion,
- Attempted tax evasion,
- No previous convictions,
- Long duration of the proceedings and procedural delays not attributable to the offender,
- A previously failed self-disclosure according to § 371 AO, for example, due to incompletion,
- The effort to compensate for damages by prompt payment of evaded taxes.
Record in the Police Clearance Certificate
If there is no record in the police clearance certificate, despite a conviction, one may describe oneself as having no criminal record and does not have to disclose the facts on which the conviction is based (§ 53 BZRG). An entry is not made for fines less than 90 daily rates or corresponding imprisonment sentences. If necessary, the criminal defense should try to avoid an entry in the police clearance certificate by seeking a lower penalty.
However, a precondition for no entry being made is that the criminal record does not contain an entry by then. If an entry has already been recorded, a second entry is made despite a penalty of less than 90 daily rates.
Practice Group: German Criminal Tax Law
Practice Group:
German Criminal Tax Law Cases
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