What is necessary for the offence of tax evasion under sec. 370 (AO) to be committed?

The objective offence of tax evasion under Section 370 (AO) is committed if someone

1. Provides incorrect or incomplete information about facts relevant to VAT (sec. 370 para. 1 no. 1 AO).

2. Conceals facts relevant to VAT in breach of duty (sec. 370 para. 1 no. 2 AO).

3. Fails to use tax stamps or tax seals in breach of duty (sec. 370 para. 1 no. 3 AO).

This means that taxes must be evaded or that unjustified tax advantages must be obtained for oneself or another person.

In addition, there must be deliberate action at the subjective level. This means that the offender must be aware of the facts relevant to VAT and act deliberately to evade taxes or obtain unjustified VAT advantages.

Deliberate includes knowledge and the will to fulfil all the objective elements of the offence of tax evasion:

• Knowledge: The offender must know that their information is incomplete or incorrect, or that they are hiding facts that are relevant for tax purposes.

• Intent: The perpetrator must intend to reduce their tax liability or obtain unjustified tax advantages.

It should be noted here that even so-called contingent intent (also known as conditional intent) is sufficient. Conditional intent comes into consideration if the offender neither strives for nor considers the offence to be certain but only considers it possible yet accepts it nonetheless. The offender must therefore know and want that, as a result of their statements, the VAT will be set lower than is legally due. They must know that they are making incorrect statements about facts that are relevant for VAT purposes and that these statements will affect the VAT liability.

 

Examples of deliberate tax evasion under sec. 370 (AO)

• A taxable person deliberately files false supplies to pay less VAT. He knows that the information is false and wants to reduce his VAT liability.

• A taxable person deducts input VAT from forged invoices to obtain unjustified input VAT refunds. He is aware of the falsification and wants to obtain the tax advantage.

• An importer declares goods at a lower customs value to pay lower import duties. He knows that the value is false and wants to pay lower duties.

• A taxable person imports goods without clearing them for customs. He knows that declaration is required and wants to avoid paying import duties.

What is the penalty for tax evasion under Section 370 of the German Fiscal Code (AO)?

The penalties for tax evasion are generally imprisonment for up to five years or a fine (sec. 370 para. 1 AO). In particularly serious cases, however, the imprisonment is at least six months and up to ten years (sec. 370 para. 3) AO).

A particularly serious case usually exists (which is why these cases are referred to as typical examples) if:

• Taxes are evaded on a large scale. According to jurisprudence, this is the case for tax evasion of 50,000 euros or more (sec. 370 para. 3 sentence 2 no. 1 AO).

• A public official abuses his position to evade taxes (sec. 370 para. 3 sentence 2 no. 2 AO).

• The offender continuously evades taxes by using forged or falsified documents (sec. 370 para. 3 sentence 2 no. 4 AO).

• The tax evasion is committed as a member of a gang organised for the purpose of committing tax evasion offences on a continuous basis (sec. 370 para. 3 sentence 2 no. 5 AO).

The examples in the rule serve to identify particularly punishable types of tax evasion and to impose correspondingly harsher penalties. Therefore, if the examples in the rule are realised, the increased penalty range of Section 370 para. 3 sentence 2 German Fiscal Code should generally apply.
The legal regulation is of considerable practical significance, as it entails a significant increase in the severity of penalties and extends the statute of limitations for criminal prosecution from five to fifteen years. Particularly in a corporate context, the objective requirements for a particularly serious case of tax evasion are very quickly met.

This is illustrated by the following examples:

• Large scale: A taxable person evades VAT of EUR 52,000 by providing false information in a VAT return.

• Use of forged documents: A taxable person deducts input VAT from forged invoices in order to obtain unjustified input VAT refunds.

• Organised fraud: A group of taxable persons organises a VAT carousel fraud to systematically evade import duties.

• Organised fraud: A taxable person becomes part of a VAT carousel fraud because, despite some objective indications to this effect, it did not refrain from the transaction and accepted becoming part of the carousel transaction.

In this context, it is important to note that the occurrence of a typical example is only an indication of a particularly serious case, which can, however, be refuted. Particular attention should be paid to this in the context of the defence.

Note: By means of a (non-punishable) voluntary self-disclosure (Kommentar von BSA bzgl. Verlinkung) in the case of tax evasion (also known as a supplementary declaration), punishment for tax evasion can be avoided in accordance with sec. 371 of the German Fiscal Code (AO).

How long is the statute of limitations for tax evasion?

The criminal statute of limitations for tax evasion is governed by sec. 78 para. 3 no. 4 of the German Criminal Code (StGB) and is generally five years. In particularly serious cases, which are listed in sec. 370 para. 3 sentence 2 nos. 1-6 AO, the statute of limitations is fifteen years (in old cases that were not yet time-barred on 28 December 2020, possibly still ten years under sec. 376 para. 1 AO, old version). 

Tax consequences of tax evasion

1. Extended assessment period:  In the event of tax evasion, the assessment period is extended to ten years in accordance with sec. 169 para. 2 sentence 2 AO. This extended period applies only to the evaded taxes and begins at the end of the calendar year in which the tax arose. In addition, the assessment period does not end before the statute of limitations for prosecuting tax evasion has expired (sec. 171 para. 7 AO).

2. Interest on tax evasion: In addition to the back payment of evaded taxes, interest on tax evasion may also be imposed. This amounts to 0.5% per month of the evaded tax amount and is calculated in accordance with sec. 235 of the German Fiscal Code (AO). Interest is charged from the date of the tax reduction until the evaded taxes have been paid in full.

Differentiation from reckless tax evasion

Not every incorrect VAT return meets the criteria for tax evasion. In many cases, it is merely a case of reckless tax evasion under sec. 378 of the German Fiscal Code (AO) – a tax offence without intent. Read here to find out what the differences are and what legal consequences each may entail: 
Reckless tax evasion under sec. 378 AO
More on voluntary self-disclosure exempt from fines under sec. 378 German Fiscal Code