The German Fiscal Code provides for the possibility of a voluntary self-disclosure of tax evasion. Taxpayers are able to correct or complete their own incorrect tax returns or furnish relevant information previously omitted. In such cases, the taxpayer will be exempt from criminal prosecution for tax evasion in respect of those previously incorrect, incomplete, or omitted particulars. As a consequence of the ongoing media coverage on prominent tax evaders in Germany, Bundestag and Bundesrat have agreed on stricter requirements for voluntary self-disclosure. Such new requirements entered into force on January 1, 2015.
I. Previous legal situation
In order to enjoy the statutory exemption from criminal prosecution, a delinquent taxpayer had to meet the following requirements for voluntary self-disclosure:
- The delinquent taxpayer had to give complete and fully correct data and figures to the competent revenue authority so to enable the revenue authority to assess all taxes owed. A partial voluntary self-disclosure was impermissible since 2011 and could lead to criminal prosecution.
- Voluntary self-disclosure had to cover the complete period of time for which criminal prosecution is not statute-barred. This limitation period started with the completion of the offence and amounted to five years in minor cases (taxes owed are less than 50,000 Euros for each year) and to ten years in more serious cases.
- The taxpayer had to pay all taxes owed within the deadline set by the revenue authority.
- Interest of 6 percent per year has been charged together with the taxes owed. If taxes owed were in excess of 50,000 Euros, an additional penalty of 5 percent of the tax owed was added.
Voluntary self-disclosure did not hinder criminal prosecution if the delinquent taxpayer or his representative had already been notified of the initiation of a tax audit or of criminal or misdemeanor proceedings. The same holds true if an officer of the revenue authority visited the taxpayer for the purpose of a tax audit or criminal investigation. Finally, criminal prosecution was not barred by a voluntary disclosure if the offence had already been detected by the revenue authority and the taxpayer either was aware of this fact or should have expected detection upon due consideration of his case.
II. Adopted changes
German legislators now have decided to tighten the conditions for exemption from criminal prosecution as follows:
- The period of time a taxpayer must cover with complete and fully correct data in order to be exempt from criminal prosecution has generally been extended to ten years in all cases.
- For certain cases of foreign capital gains the limitation period for tax assessments has been extended to twenty (!) years.
- The interest of 6 percent per year for all fiscal years lapsed is due for payment immediately.
- The additional penalty is already applicable if the total of taxes owed is in excess of25,000 Euros. In case the total of taxes owed is less than 100,000 Euros, the penalty has been raised to 10 percent of the taxes owed. If the total of taxes owed is in excess of 100,000 Euros but less than one million Euros, the penalty is 15 percent. For all taxes owed in excess of one million Euros, the penalty now is 20 percent of the taxes owed.
- The additional penalty is due for payment immediately (together with the taxes owed and the annual interest of 6 percent).