Tax Evasion: What Penalty is Threatened?

Is tax evasion a criminal offense?

In Germany, tax evasion is a criminal offense (§ 370 AO) and is generally committed when

• false or incorrect information is provided about facts that are relevant under tax law (e.g., false invoices, failure to account for discounts, false income statements, etc.)
• tax-relevant facts are concealed (e.g., the sale of goods and services – commonly known as undeclared work)
• a tax stamp or tax mark is not used in violation of duty (e.g., when selling cigarettes without a valid tax mark)

Even the attempt can constitute a criminal act. It does not even have to lead to success, i.e., actual tax evasion. The mere attempt to “deceive” the authorities is sufficient for criminal liability.

The same applies even if business is conducted abroad, but there is a tax liability in Germany.

Tax Evasion as an Administrative Offense

An administrative offense in tax evasion can exist if the tax evasion is committed recklessly (§ 378 AO). Recklessness can be compared to gross negligence in civil law and means that the customary care has been grossly violated.

In individual cases, much depends on the presentation and determination of the facts. If you have not submitted a mandatory tax return on time or it is completely missing, but you were unable to submit it on time, for example, because you were ill yourself or the person who usually handles the accounting in your company was ill, then an administrative offense exists.

Missing information for a tax assessment can also constitute an administrative offense.

What penalty is threatened for tax evasion?

For tax evasion, a prison sentence of up to 5 years or a fine is threatened. This penalty should not be taken lightly.

The exact sentence imposed usually depends on the amount of evaded taxes and the overall assessment of all circumstances. However, as a rule of thumb, there are some guidelines from the Federal Court of Justice (BGH) on the amount of penalties, which are as follows:

• less than 1,000 euros: termination against conditions or daily rates 8 to 15;
• 2,500 euros: fine – 10 to 30 daily rates;
• 5,000 euros: fine – 30 to 60 daily rates;
• 10,000 euros: fine – 50 to 140 daily rates;
• 25,000 euros: fine – 120 to 300 daily rates;
• 50,000 to 1 million euros: fine – 220 to 360 daily rates or

suspended prison sentence plus monetary penalty;

• from 1 million euros: prison sentence without suspension.

A daily rate generally corresponds to the convicted person’s daily income, i.e., 1/30 of a monthly salary. In other words, the “net monthly income” divided by 30 results in the daily rate amount (see § 40 Abs. 2 Satz 2 StGB). Maintenance payments by the offender must be appropriately considered.

The minimum amount of a daily rate is 1 euro, the maximum amount is 5,000 euros. This results in a theoretical penalty range for fines from 5 euros to 21,600,000 euros.

The amount of penalties in individual cases always depends on the specific amount and the circumstances of the offense. One cannot rely bindingly on similar cases and the decisions made there; these can only serve as a basis for arguing accordingly with the investigative authorities and courts.

Important: In addition to the fine or prison sentence, the repayment of the evaded taxes is always added, including interest of 0.5% per month of the evasion.

Circumstances aggravating punishment

In a particularly serious case, a significantly higher prison sentence of at least 6 months and up to 10 years is threatened (§ 370 Abs. 3 AO). Such a case always exists when

• taxes are evaded on a large scale;
• powers as an official are abused;
• the assistance of an official is exploited for the offense;
• taxes are evaded through forged documents;
• tax evasion is committed by a gang (keyword: VAT carousel);
• the tax laws of other states are exploited (e.g., through offshore accounts).

Particular problems are posed by the standard example of a particularly serious case, namely tax reduction on a particularly large scale (or corresponding tax advantages are obtained). The Federal Court of Justice already ruled on this with its judgment of December 2, 2008 (BGHSt 53, 71) that a particularly large scale exists for a tax reduction from 50,000 EUR and for a risk to the tax claim from 100,000 EUR. This jurisprudence was evidently approved by the legislator (cf. BGH, decision of May 5, 2011 – 1 StR 116/11 = NStZ 2012, 162), but still contained contradictions in detail (cf. BGH, decision of December 15, 2011).

With its judgment of October 27, 2015 (BGH 27.10.2015 – 1 StR 373/15, BGHSt 61, 28), the BGH changed its jurisprudence and ruled that for the assumption of evasion on a large scale, uniformly – i.e., also in cases of omission – the threshold of 50,000 euros applies.

From an evaded amount of 50,000 euros or correspondingly high unduly granted tax advantages, a prison sentence is considered for tax evasion, apart from special circumstances aggravating or mitigating punishment, according to the Federal Court of Justice.

Aggravating circumstances regularly considered also include:

• acting out of greed, gross self-interest, or avarice;
• unscrupulous and reckless conduct;
• tax reduction over a longer period;
• previous terminations with conditions and relevant prior convictions (cf. however § 51 BZRG);
• particularly reprehensible execution (e.g., forgery of documents, false affidavit according to § 95 AO, inducing third parties – especially dependent persons – to participate, manipulation of books and documents, violation of bookkeeping and retention obligations regarding business documents – cf. BGH, judgment of July 28, 2010 – 1 StR 643/09, accounts under false or fictitious names);
• violation of special declaration and payment obligations, such as for wage and sales tax;
• obstruction of the investigation (e.g., destruction or removal of evidence, influencing witnesses, deliberate misleading of investigative authorities);
• active behavior to thwart the tax claim (e.g., transferring assets abroad).
  
  

Circumstances mitigating punishment

Circumstances mitigating punishment can, under certain conditions, constitute an administrative offense if the acts are committed “only” recklessly. In such cases, a fine of up to 50,000 euros may be imposed. If the missing information is “corrected” by the taxpayer before proceedings, a fine is often waived.

In addition to the form of intent and the amount of the evaded sum, other sentencing factors play a role in determining the penalty for tax evasion (cf. AStBV [St] 2012 No. 77). Particularly mitigating circumstances include:

• acting out of a non-self-inflicted coercive or emergency situation or for the benefit of another;
• old age;
• low educational level;
• active cooperation in clarifying the offense;
• “unsuccessful” voluntary disclosure;
• confession;
• reparation (full payment of the reduced taxes);
• tax inexperience or low educational level, insofar as these circumstances influenced the offense;
• long duration between the commission of the offense and sentencing.

Important: As experienced criminal defense lawyers, this repeatedly provides us with a good starting point for an effective defense strategy. Please feel free to contact us if you need support.

Professional Consequences

In individual cases, tax evasion can also have professional consequences.

As a measure of security and rehabilitation, the court can already impose a ban in criminal proceedings on practicing a profession, professional field, trade, or branch of trade. The duration of the ban is one to up to 5 years; in rare exceptional cases, it can even be imposed for life, § 70 Abs. 1 S. 2 StGB.

Thus, a conviction can lead to the revocation of a restaurant license or a prohibition of trade.

Especially civil servants must expect disciplinary measures. However, other employment law consequences cannot be ruled out.

A civil servant relationship ends upon conviction for an intentional offense to a prison sentence of at least one year ipso iure according to § 41 Abs. 1 S. 1 No. 1 BBG. In the case of a conviction for certain offenses, particularly bribery, 6 months of imprisonment are already sufficient. The right to remuneration and pension ends according to § 39 BBG. A petition for clemency according to § 43 BBG against the loss of civil servant rights promises only low chances of success. Civil service consequences are also possible for convictions with lesser penalties. This also applies to a self-disclosure that exempts from punishment.

For members of the legal and tax advisory professions, doctors, pharmacists, architects, bank employees, civil servants, and public service employees, there is also a high risk of professional and disciplinary consequences of tax evasion.

Lawyers, notaries, tax advisors, and auditors must, in the event of a conviction for a tax criminal offense or a tax administrative offense, in the worst case, expect exclusion according to § 114 Abs. 1 No. 5 BRAO, § 90 Abs. 1 No. 4 StBerG, § 19 Abs. 1 No. 3 WPO, or removal from office according to § 97 Abs. 1 BNotO.

Doctors must fear the withdrawal of their license to practice medicine according to §§ 5 Abs. 2 i.V.m. § 3 Abs. 1 No. 2 BÄO due to unreliability or unworthiness to practice the medical profession. The revocation of the license is carried out by the state authority responsible under state law according to § 12 Abs. 4 S. 1 BÄO. For pharmacists, the revocation of the license to practice medicine is governed by §§ 6 Abs. 2 i.V.m. 4 Abs. 1 S. 1 No. 2 BApO.

For architects, a deletion of the entry in the architects’ list ordered by an honorary court may be considered under the state architectural laws (Quedenfeld/Füllsack-Bach, Defense in Tax Criminal Cases, 4th ed., para. 1172).

For bank employees, the revocation of the license according to §§ 33 Abs. 1 No. 2 and 3 i.V.m. 35 Abs. 2 No. 3 KWG may result due to a tax criminal offense or administrative offense.

In addition to the tax burden to be borne, the “offender” thus faces the loss of income under these unfavorable circumstances.

What is the effect of voluntary disclosure?

Anyone who voluntarily reports to the authorities early (before suspicion is raised) and confesses to tax evasion can, under certain circumstances, avoid punishment. This offers the possibility of disclosing the acts on one’s own initiative and thus escaping punishment. However, caution is advised here – accused persons do not have a claim to impunity.

A prerequisite is that all information is corrected and necessary information is submitted completely and subsequently to the tax authorities. In addition, the evaded taxes must, of course, be fully paid back, plus evasion interest.

Determining the exact details retrospectively is often associated with considerable effort. It is possible to estimate the tax burden and submit the specific information by the end of a reasonable deadline. But: