Voluntary Self-Disclosure: Tax Law in Germany

Voluntary Self-Disclosure: Tax Law in Germany

Accusations of tax fraud can be distressing for individuals. The process of voluntary self-disclosure under § 371 German Fiscal Code can therefore seem like a good option available to those who become aware that they may be in breach of the law.

The process of voluntary self-disclosure can lead to the prevention of criminal sanctions on an individual. However, as some recent cases involving specific high-profile individuals in Germany have demonstrated, there are other occasions where voluntary self-disclosure does not fully protect the person making the disclosure.

This page will outline the law relating to voluntary self-disclosure in Germany and assess the options available to individuals. It will consider the benefits of voluntary self-disclosure as well as the limitations of the law. Please do not hesitate to contact us directly if you require specialised assistance.

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Voluntary Self-Disclosure under German Law

The law on voluntary self-disclosure comes from § 371 AO (German Fiscal Code) and outlines the following strict requirements for voluntary self-disclosure to be considered fully valid. This section lists the following conditions which must be met to be exempt from prosecution by the submission of a voluntary self-disclosure:

  1. The offence must not currently be under investigation by the tax authorities: “Exemption from punishment shall not apply if the person involved in the act or his representative has been notified of the initiation of criminal proceedings or administrative fine proceedings” § 371 (2)(1) AO.
  2. The disclosure must be made in full – the person makes a tax declaration on their entire income. This requirement extends to income which may have previously not been declared.
  3. The individual makes the appropriate repayments – including the appropriate surcharge applicable to the level of tax repayment – in the suitable timeframe. This surcharge applies to figures of €25,000 and above, with a 10% surcharge for amounts up to €100,000, 15% for amounts between €100,000 and €1,000,000 and 20% for amounts over €1,000,000.

The first element of the disclosure requirements is worth keeping in mind. Suppose you make the voluntary self-disclosure after becoming aware of an investigation by the tax authorities. In that case, you may be leaving yourself open in a claim for tax evasion. Such an action would present the tax authorities with the evidence required in their case. In this situation, voluntary self-disclosure will not protect you from any sanctions applicable to tax evasion.

The law on tax evasion in Germany is provided under § 370 AO (German Fiscal Code) and states that an individual found guilty of this action can face a fine or even a prison sentence of up to 5 years.

In more severe cases (such as using falsified documents or where a person in a public office abuses their position), the sentence can be up to 10 years imprisonment. The offence of tax evasion involves submitting false information or omitting information concerning the individual’s (or company’s) financial situation for tax purposes.

The impact of tax evasion can affect other parties who were aware of and supported the tax evasion measures.

Regarding the incorrect implementation of voluntary self-disclosure, whereby the individual makes a disclosure but in a manner not per the above-provided conditions, they leave themselves open to the above-listed sanctions.

As well as that, they may also face professional disciplinary measures such as bans on commercial activity, barring from future directorships and other industry-specific disciplinary actions.

Our legal team works with corporate clients to ensure they know their compliance requirements to operate in Germany. For specialised advice, make sure to contact our lawyers directly.

Submitting a Voluntary Self-Disclosure

Should you currently be considering a voluntary self-disclosure of your tax affairs, then it is crucial to contact our tax lawyers. Our lawyers have experience submitting such disclosures and will ensure that your self-disclosure is carried out on time and appropriately.

To ensure that your tax affairs are resolved while the impunity is in place, it is vital to work quickly and efficiently in such a submission. Delay in its disclosure can lead to the tax authorities becoming aware of the irregularities, thus negating the benefit of voluntary self-disclosure.

Should the authorities announce an investigation or start with office or house searches, it is likely too late to make the voluntary self-disclosure.

If you require urgent assistance, contact our lawyers as soon as possible.

Submitting a voluntary self-disclosure must be completed in writing or orally with the tax authorities (over the phone or in-office).

Although it is not a requirement to make a tax declaration in writing, we would urge our clients, wherever possible, to make it in writing.

As stated, the tax declaration must be in total, and omissions can make self-disclosure ineffective. Written disclosures are more reliable and can be more thoroughly assessed.

When making the declaration, the taxpayer must take responsibility for what they have submitted by signing the disclosure or authorising their tax advisor to sign it. The statement should, in practice, be similar to a regular tax return.

Our lawyers will draft the disclosure with you and ensure it complies with its legal requirements.

In creating the voluntary self-disclosure, there is no stated requirement that the individual provides reasons for the previously evaded taxes. Supplying a cause, especially in cases of misunderstanding or oversight, can be tempting. Mistakes can happen even in tax payments.

However, we would tend to avoid this as such explanations are not generally required and can often lead to further legal complications further down the road.

Consult with a tax lawyer before making the voluntary self-disclosure so you are fully aware of all legal consequences of such a decision.

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Practice Group: German Criminal Tax Law

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German Criminal Tax Law Cases

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