Tax criminal law

Defence in criminal tax matters requires special expertise. Criminal tax law is one of the core areas of commercial criminal law.

Criminal tax law is extremely complex and permeates all areas of life, in particular economic and entrepreneurial activities. Every false statement regarding tax matters towards the tax authorities involves the risk of criminal charges. Often these charges are made subsequent to tax audits or they result from control reports of the tax authorities.

If criminal tax proceedings are opened, the rights of the defendant conflict with their tax obligations. We protect your criminal procedural rights – without losing track of your tax obligations. Of particular importance is the advice on voluntary declaration to avoid punishment: if this declaration is incorrect or incomplete, the taxable person faces serious disadvantages.

Criminal tax law is often teamwork. We closely cooperate with tax accountants and auditors to clarify and establish the correct tax. The loss assessment of the tax authorities is often unsubstantiated and exaggerated. We analyse and question the allegations.

Penalties for tax offences have been tightened over the course of recent years. Not least against the backdrop of prominent examples, public awareness that these cases are not trivial has increased.

Investigation in tax offences can easily become an existential threat. The spectrum of criminal tax law matters is relatively broad. It ranges from minor offences within the private sphere (for example: tax deductibility of a study in private homes) to highly organized business models with the sole purpose to evade taxes. This particularly includes Missing Trader Intra-Community (MTIC) fraud, which can cause fiscal damage in the millions.

Tax evasion pursuant to sect. 370 Fiscal Code

According to section 370 Fiscal Code, tax evasion is the main element of criminal tax law. In principle, it states the following:

(1) A penalty of up to five years’ imprisonment or a monetary fine shall be imposed on any person who
1. furnishes the revenue authorities or other authorities with incorrect or incomplete particulars concerning matters that are relevant for tax purposes
2. fails to inform the revenue authorities of facts that are relevant for tax purposes when obliged to do so or
[…]

Incorrect or incomplete statements towards the relevant tax authorities are punishable as well as failing to inform tax authorities when obliged to do so. This is immediately understandable: a person who fails to inform the tax authorities about their income is as punishable as a person who under-declares their income.

False statement of tax relevant information

Statements are false if they do not correspond to actual facts. Tax regulations detail which information is tax relevant. The obligation to declare can be quite complex. For example, a case where a person does not declare certain income is relatively easy to assess. This also applies to cases where input taxes are claimed from transactions that in fact did not happen. If, however, the eligibility of business expenses is at issue, it may be in doubt whether, and if so which, information have been omitted.

Understatement of tax

A condition of tax evasion is, in general, the occurrence of fiscal damage. A prerequisite of tax evasion is the occurrence of fiscal damage. In some cases, evaded tax can be easily calculated. If, for example, a company fails to declare certain turnovers, the amount of evaded VAT can be determined. If, however, the tax authorities estimate the amount of evaded tax, the question arises whether and to what extent these estimations are applicable in criminal law. Even though caution should be exercised, the amount of tax evaded can in general be established by estimation.

Special case: VAT fraud

Particularly high fiscal damages occur in the context of Missing Trader Intra-Community (MTIC) fraud. This refers to different business models whose sole purpose is the evasion of VAT. Fictitious invoices are used for services that have not been performed. It is the objective of these actions to create unjustified input tax claims and cash in by using persons and companies that are out of the authorities’ grasp or rather ‘vanish’ (‘missing traders’).

Company tax evasion

Constellations that give reasons for tax legal concerns also occur in companies on a regular basis, ranging from individual unauthorized business expenses to direct tax avoidance models. These constellations vary significantly. In any case, it is advisable to include the employees or departments responsible for tax matters within the company at an early stage. In cases of doubt experts in tax law and criminal tax matters can and should be included.

Non-declaration of income from capital

A special issue in this context is the non-declaration of income from capital. In the past, this offence was epitomized by the so-called numbered account in Switzerland in order to hide income from German tax authorities. The purchase of so-called tax CDs by the German tax authorities has attracted considerable media interest in this respect and resulted in several investigations and preliminary proceedings. Owing to its criminal origins, the purchase of these databases by the German state must be seen in a critical light. However, in accordance with current jurisprudence this does not justify the prohibition on the use or exploitation of this material.

Voluntary disclosure: Section 371 Fiscal Code

Criminal tax law includes the tool of voluntary disclosure. It provides that whoever fully corrects the incorrect particulars submitted to the tax authorities prior to their exposure and settles their tax liability will not be punished. The details of this provision are much more complex, not least due to several amendments, and difficult to comprehend in its entirety. The voluntary disclosure must, in general, include all criminal tax offences of one type of tax that have not become time-barred and at least all tax crimes of one type of tax within the last ten calendar years.

Section 371 par. 2 Fiscal Code, on the other hand – a most complex provision – states in which cases exemption from punishment shall not apply. This is the case if the offence has already been detected or if investigations or prosecutions by the tax authorities have been opened. We are unable to discuss this issue in any further detail here.

Pursuant to section 371 par. 3 Fiscal Code the voluntary disclosure also requires the settlement of tax liabilities in general.

Penalties for tax evasion

Sentencing for tax evasion depends – as usual – on the individual case. All relevant circumstances must be considered, section 46 Criminal Code. However, fiscal damage resulting from tax evasion, which can easily be determined, is a crucial aspect of sentencing for tax offences. This is the reason for the establishment of some sentencing guidelines for tax crimes.

In this regard, the principle decision by the First Penal Chamber of the Federal High Court from 2 December 2008, 1 StR 416/08 must be mentioned. It states that in the event that the tax evasion amount exceeds €100,000, monetary penalties can no longer be considered and that imprisonment (on probation) is possible. For tax evasion that amounts to or exceeds €1 million imprisonment on probation can no longer be considered; this offence attracts imprisonment enforceable.

Particularly serious cases of tax evasion

Section 370 par. 3 Fiscal Code contains a provision regarding particularly serious cases of tax evasion. It provides a penalty range of six months to ten years’ imprisonment. Particularly serious cases are – slightly simplified – the following:

large scale
abuse of the authority or position as a public official
soliciting the assistance of a public official
using falsified or forged documents
being a member of group formed for the purpose of repeatedly committing tax evasion offences

Underpaid or evaded taxes or tax advantages on a large scale are those that amount to or exceed €50,000.

We are criminal lawyers

Criminal tax law offers special defense opportunities. We analyse the charges brought against you and develop solutions for your case. For this purpose, we can draw on decades-long specialized experiences, which allows us to achieve the optimal outcome. Of course we pay particular attention to various possibilities of proceedings being dismissed according to the Code of Criminal Procedure.

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