The topic of “voluntary disclosure resulting in immunity” has increasingly gained importance, especially due to the repeated purchase of data CDs from Switzerland, the pressure of Swiss banks on its customers to disclose their untaxed income and also the planned EU-wide elimination of bank secrecy through the automated exchange of tax data. Since the risk that tax evasion will be detected is increasing steadily, more and more taxpayers are choosing voluntary disclosure resulting in immunity in order to avoid possible penalties for tax evasion. Taxpayers face up to 5 years in prison or a stiff fine in case of tax evasion. In especially serious cases (generally evasion involving more than EUR 50,000.- per offence, i.e. per year and type of tax), imprisonment of up to 10 years is mandatory according to law. With voluntary disclosure pursuant to Section 371 Tax Code, the taxpayer is exempt from punishment as long as voluntary disclosure is made while
- the offence has not been discovered yet,
- notice of a tax audit or the commencement of summary or criminal proceedings has not been issued yet, and
- a tax inspector has not yet appeared for a tax audit, to establish a tax offence or an offence against tax laws.
Completing and submitting the voluntary disclosure is therefore crucial for exemption from punishment.
In addition to exemption from punishment, voluntary disclosure has the advantage of being able to freely dispose of foreign assets. What’s more, the problem of foreign illegal earnings is not transferred to the next generation. Finally, a return to tax compliance is usually a great relief for the taxpayer, so that he or she can “rest easy” again. However, exemption from punishment depends on the declaration submitted to the tax authorities meeting certain requirements defined by law. These requirements have become much stricter, especially due to the law on combating illegal earnings. The requirements for preparing a voluntary disclosure and therefore achieving exemption from punishment have therefore become more difficult to meet. Now voluntary disclosure is effective and leads to exemption from punishment only if the taxpayer fully corrects the incorrect information, amends incomplete information or provides information not previously submitted for all tax offences that are not statute-barred (generally a 5 or 10-year assessment period) for a type of tax (income tax, corporate tax, commercial tax, sales tax etc.). Conscious or tacitly accepted partial voluntary disclosure, in other words disclosure referring to only certain tax offences that are not statute-barred, is therefore no longer effective. While frivolous incompleteness is generally harmless, the authorities and courts quickly assume conditional intent. As a result, the taxpayer bears the risk of having to prove that incomplete disclosure is not due to conditional intent. Furthermore, the deviation between the subsequently declared and reduced tax, in other words the actually evaded tax, is only permitted to be 5% or less in case of frivolous incompleteness.
In this context, the main difficulty lies in the question of how to classify and therefore tax the financial instruments held by the taxpayer (bonds, shares, funds, financial innovations etc.). Classification and/or valuation can therefore put the effectiveness of voluntary disclosure in regards to exemption from punishment at risk due to the associated insufficient taxation.
If (alleged) tax evasion has already been discovered (especially in the course of an audit) and preliminary proceedings have been initiated, the circumstances first have to be documented and a comprehensive legal assessment has to be prepared. Then the criminal charge has to be refuted with arguments as far as possible. If an allegation cannot be cleared legally or in fact, it is possible to negotiate with the fine and criminal case office (BuStra) or the prosecution for conditional discontinuation. With our interdisciplinary team of specialist attorneys and tax consultants, we are prepared to assist you with your voluntary disclosure and the strategic negotiation of your tax case in words and deeds.
The following are available to you for initial contact:
Dr. Michael Lingenberg LL.M. oec.
Attorney Tax Law Specialist
Phone: +49 (0)89 21 55 32 010
Dipl.-Kfm. Christoph Braun
Auditor Tax Consultant
Phone: +49 (0)871 66 06 34 81