Tax evasion in Germany

In Germany, tax evasion is defined activity by “someone [who]

1. Provides the tax authorities or other authorities with incorrect or incomplete information about tax-relevant facts;
2. Fails to inform the tax authorities of tax-relevant facts in breach of duty; or
3. Fails to use tax stamps in breach of duty,

and thereby reduces taxes or obtains unjustified tax advantages for himself or another person”.

The consequence is usually a monetary fine, but this may go up to imprisonment for up to 10 years in particularly serious cases such as reducing taxes on a large scale. In less severe cases of recklessly committing one of the acts described above, a monetary fine of up to EUR 50,000 will be assessed.

In addition to the taxes and interest to be paid, monetary fines between 10% and 20% of the evaded tax will be assessed in cases where the authorities decide to refrain from criminal proceedings. 

The following table can serve as a general guideline of what you can expect in case of a first-time tax evasion: 

How do German authorities typically find out about tax evasion? 

Germany has implemented a large number of reporting requirements for banks, insurance companies, social security carriers, brokers, cryptocurrency exchanges, online rental portals such as Airbnb, notaries, intermediaries, and foreign tax authorities which must report certain matters automatically or upon request. 

German tax authorities also carry out tax field audits and report findings to respective tax offices. In some cases, they have bought data from whistleblowers such as the famous CDs with lists of Germans with Swiss bank accounts, or the Panama papers. 

What are the opportunities to amend tax declarations or declare additional income? 

When a taxpayer realises before the period for assessment has elapsed

1. That a return previously submitted (by the taxpayer directly or on their behalf) is unintentionally incorrect or incomplete, and that this could lead or has already led to an understatement of tax; or
2. That a tax amount payable by way of tax mark or tax stamp was not paid in the correct amount;

and indicates this information to the authorities without undue delay and effects the necessary corrections, the taxpayer may report a mere correction. However, in case of tax evasion with intention, it is only possible to make a “voluntary disclosure of tax evasion”.

What are the conditions for voluntary disclosure of tax evasion? 

The information provided in the voluntary disclosure must cover all tax crimes for one type of tax that have not become time-barred, and at least all tax crimes for one type of tax within the last 10 calendar years. 

Where tax has already been understated, or tax advantages have already been derived, exemption from punishment will be granted to the person involved in the act only if the taxpayer pays, within the reasonable period of time allowed to him, the taxes which were evaded to their benefit through the perpetration of the act and the interest payable on the evaded taxes. 

What are the consequences of voluntary disclosure of tax evasion? 

Those who fully correct the incorrect particulars submitted to the revenue authority (in relation to all tax crimes for a type of tax), and supplement the incomplete particulars submitted to the revenue authority or furnishes the revenue authority with the previously omitted particulars, shall not be punished pursuant to Section 370 on account of these tax crimes, i.e. no imprisonment, but taxes, interest, and monetary fines will still arise.

When is voluntary disclosure of tax evasion no longer possible? 

Indemnity will not be granted if: 

1. Prior to the correction the person(s) involved were notified of a tax field audit order, the initiation of criminal proceedings or administrative fine proceedings, or a public official from the revenue authority had already appeared for the purpose of carrying out a tax audit, VAT, or wages tax inspection, or investigating a tax crime or tax-related administrative offence.
2. One of the tax crimes had already been fully or partially detected at the time of the correction, supplementation, or subsequent furnishing of particulars, and the perpetrator knew this, or should have expected this upon due consideration of the facts of the case.
3. The understated tax or the unwarranted tax advantage exceeds EUR 25,000 per act; or
4. A particularly serious case exists.

What are the primary areas in which voluntary disclosure of tax evasion plays a major role?

The German Federal Ministry of Finance compiles annual statistics on the results of the prosecution of criminal tax offenses and administrative tax offenses as well as the results of tax investigations. In 2023, there was an approximate total of 47,900 criminal proceedings for tax offenses nationwide. In addition, around 5,000 fine proceedings were concluded and fines totalling around EUR 16 million were imposed.

In the same period, the tax investigation department dealt with a total of 34,600 cases nationwide. Additional taxes amounting to around EUR 2.5 billion were identified, and prison sentences totalling 1,460 years were imposed. The majority of cases concerned non-disclosed income and VAT matters. 

What is often overlooked by foreigners but considered tax evasion in Germany?

Tax evasion requires that the person acted deliberately, but it is often underestimated by foreigners that deliberation also includes not knowing for sure but accepting that there may be a tax duty without verifying, e.g. by asking an expert. Not knowing does not help if the taxpayer has the money to pay an expert and the matter is complex.

Managing directors are liable for the companies they represent. In severe cases they may be arrested when entering or leaving Germany or the European Union. If sentenced, they may have a criminal record.

What do you recommend to clients who have committed tax evasion? 

• Get professional advice. Find a tax advisor or criminal defence lawyer who is an expert in that matter.
• If you have inherited assets with non-declared income in the past, the obligation to report such income passes on to you. Failing to report such income makes the heir a tax evader too.
• Act immediately. If tax evaders or consultants wait too long the opportunity for voluntary disclosure may expire. One day earlier can save the neck. 
• Engage a tax consultant or lawyer who was not involved in the tax evasion beforehand. 
• In a voluntary self-disclosure do not “forget” to report any income as this will make the whole declaration invalid. 
• Make sure to have funds available to make the expected payments for taxes, interest, and fines within 4­–6 weeks after filing the disclosure. Non-payment will make the disclosure invalid.
• The disclosure must enable the tax office to assess taxes without any further requests. If you are not sure about the amount, estimate an amount that exceeds the amount you can imagine it to be. An estimation which is too low will make the disclosure invalid.
• Don’t commit suicide! There is a way out.

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Oliver Biernat is the founder and managing partner of Benefitax. He is a German chartered accountant, certified tax advisor, and specialist advisor for international taxation, with more than 20 years of experience.