Avoiding Tax Evasion

Will I evade taxes, when I decide to deduct expenses I really had or when I have my tax consultant structures my situation “tax friendly”?

The answer is a very clear: “No!” It is absolutely legal to deduct expenses and structure your situation so that you have to pay fewer taxes. However, it is illegal not to declare achieved income. When you do not report your income achieved in your country of origin that will bring you into trouble! Why? Germany taxes your worldwide income based on your residence in Germany. DTAs are supposed prevent that you end up paying taxes in every country where you obtain an income.

Having not declared any taxes for several years, I have come to decision it is better to report and prevent it getting worse. Is there any kind of remedy? Can I charge myself?

That is exactly what you will have to do. Charge yourself. When you correctly do it, then you will not be prosecuted. The charge must be correct, complete, and open taxes must be paid on the spot.

What is required for preventing prosecution when I charge myself?

Following §371 AO, you will be exempted from punishment when you

  • correct incorrect details,
  • complete incomplete details,
    as well as
  • declare neglected details,
  • pay the evaded taxes within a certain, reasonable given time.

In other words, there are a lot of requirements to meet – even when you are in a crunch!

What is meant with complete details?

Your self-denunciation will be complete, when the tax office is enabled to issue new tax assessments.
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Where do I have to submit my amended return?

No, do not head to the prosecuting authority (Staatsanwaltschaft) but to the tax office which normally is competent. The state prosecutor is located by the district court in your vicinity.

What do have to declare?

Generally, you are to submit a return as if you did not have any undisclosed income. Exact numbers are required on capital income, profits from speculating next to already deducted foreign tax (foreign source taxation, German capital interest tax on dividends or taxes within EU Directive 2003/48/EG. This is to be done for all where the time limit has not expired (statute of limitations). Income (bank) statements of the last ten years will be helpful. In cases of tax evasion, the periods to be assessed go back for ten years.

Heck, I have the hunch that the Tax Fraudster CD has my name on it. How much time do I have to submit an amended return?

When you are in a time crunch, because an audit or tax fraud investigation is to be expected or your name is really on the CD, best would be to submit your self-denunciation with an estimate. Use this only when you cannot completely draw up what you have received, when and where. A later correction upwards is always possible. An estimate will not be sufficient however. (FG Düsseldorf, judgment of December 12, 2007, re 16 K 458/05 E, G).

When will I have to pay?

The best would be to declare your undisclosed income on day one and on day two the tax office has the taxes. This, of course, is not always possible. When you have to close some depots in order to pay the taxes, then get it done – yesterday. When the money will be paid out or is accessible after a certain time, instruct the tax office of that and prove it. Choose for such an income source, one that can be quickly paid out.

My cousin and shared one of those number accounts in Switzerland. He denounced himself. I guess I will then also be safe because he also reported on me. Right?

Nope. That will not do the trick! You must denounce yourself. Period. When somebody denounces himself and mentions you then the office already knows of your evasion and you lost your chance to report yourself. So, when more than one person is involved, all must denounce themselves simultaneously. Only this approach will ensure exemption from punishment. N.B. Do not forget that everybody has to denounce him- or herself at one’s own tax office.

I just got the inheritance from my uncle. Gee, he sure was a prankster! He didn’t pay any income tax whatsoever. What I am to do?

Even though it is not nice to talk bad of deceased persons, you have to report this to his(!) tax office and correct all faulty returns. You yourself will not be punished.

Even though I denounced myself to the tax office that I didn’t completely declare all my income in previous years; paid my taxes, “fine”, now I got a letter from the Staatsanwaltschaft that they are investigating against on grounds of tax evasion. Huh? What is going on? I thought with my self-accusation everything would be fine.

Well, the prosecutor is generally entitled and obligated to initiate criminal proceedings when a person is accused of a crime. In this case, the goal will be not to convict you but to test an exemption of punishment (§371 I, III AO). Seen from the perspective of the tax authority, opening the criminal proceedings prevents interest on evaded taxes expiring due to the statute of limitations. (BFH, judgment of April 29, 2008, re VIII R 5/06) So, when you have formally and correctly reported your previous undeclared income and paid your taxes, you will not have to worry – at the end of the day. Some day, you will receive a second letter that they have closed the case because you cannot be punished as you have done everything correctly.

How do I submit this snitch on me?

§371 AO does not require any certain form. However, it is strongly recommended to submit this report in writing! This will be the only way to prove your self-denunciation. It is also not necessary to give this report a certain title or even use the word “Selbstanzeige (self-denunciation)” – according to the BGH with its judgment of October 13, 1992, re 5 StR 253/92. It is customary to submit corrected returns for the relevant years with a list of capital income sources and tax deductions along with a letter of apology.

Do I have to this personally?

No, it is not legally necessary that you do it all by yourself. You may assign a lawyer or an account to assist you. Usually, this makes sense. When doing so, do be careful and explicitly assign the consul for “Erstattung der Selbstanzeige (submitting self-denunciation)”! It does not suffice just to have such counsel and it also not sufficient to subsequently authorize when previously hired.

Check the business directory to find a tax professional to help you!

How far back do I have to amend previous returns?

The period for assessing taxes is extended from 4 to 10 years (§169 II 2 AO). In other words, you have to go ten years back. This aims at giving the cheated tax authority compensation for a period even after the normal four years. (BFH, judgment of February 26, 2008, re VIII R 1/07) Since the time limit to submit starts with submission of the respective return, several older tax assessments will be corrected upwards. Let us assume you did not declare the interest in your Zurich account for 1999 and you submitted your tax return in January 2001. The ten year period starts on New Years Day 2002. Further assuming you have to report for even more years in history then that would go back to 1999. 

When preparing to amend previous returns, I notice I am entitled to a refund. Great! Will I be able to deduct the refund for one year from the debt of another year?

No! No way! The extension of the declaration period does not aim to make reimbursements possible but for the state to get lost income. Without a justifying reason, tax fraudsters may not be privileged over honest tax payers (BFH judgment of April 23, 2009, re VIII R 6/08). That is why §169 II 2 AO requires that you owe something and not that you are entitled to a refund. To receive the latter it is now too late. You had your chance but did not use it. So, tough luck!

So what are the consequences when I snitch on myself?

You will not pay any fines – the back taxes notwithstanding, when you do so.

Since tax evasion is a crime, when does such a crime come under the statute of limitations?

Normally tax crimes cannot be prosecuted after five years (§78 III 4 StGB). A self-denunciation can not be prosecuted at any time.

So tax felonies only go back five years, so why should I submit amended returns for ten year back? What you previously told makes no sense to me.

The tax office will explore backup to ten years anyhow – even if you only report amendments for five years back. This will save you trouble and maybe put you in their good grace when you need time to pay. Besides that, the prosecution period for especially aggravated cases of tax evasion lasts 10 years (§376 AO).