Tax Evasion – Voluntary Disclosure at an Early Stage Can Defuse the Situation

Tax evasion is a sensitive issue. High-profile cases of tax evasion are frequently discussed in the media. In cases of large-scale tax evasion, it is not uncommon for the offender to end up in prison. At the very least, however, a hefty fine is to be expected. Both intentional and unintentional tax evasion are therefore not minor offenses. For individuals who have committed tax evasion, however, there is a way to avoid criminal prosecution. If the offense is voluntarily reported early on, the situation can be significantly mitigated. In this article, we would therefore like to take a look at how a voluntary disclosure works.

For whom is a voluntary disclosure advisable? In what situations can a voluntary disclosure help?

First, we need to examine for whom and in what situations a voluntary disclosure makes sense. In theory, any taxpayer can file a voluntary disclosure. Voluntary disclosure is an attractive option for anyone who has knowingly or unknowingly provided false information. The classic scenario in this regard is when a taxpayer intentionally omits certain income from their tax return or otherwise provides false information. This constitutes tax evasion. However, the term “tax evasion” does not apply only to individuals who intentionally seek to avoid paying taxes. It is entirely possible that incorrect information is provided accidentally or that income is omitted from the tax return. Even if this is not done with malicious intent, it is still considered tax evasion. Ultimately, it cannot be proven that it was an oversight. In both cases, voluntary disclosure is the correct way to avoid criminal prosecution.

It is important for voluntary disclosure that the tax evasion has not yet been discovered by the authorities (and that an investigation may already be underway). If an investigation is already underway against the individual in question, it is unfortunately too late for a voluntary disclosure. This also defines the appropriate situations for a voluntary disclosure. In the case of unintentional tax evasion, a voluntary disclosure is always advisable once an error is noticed. After all, the incorrect information was not intentional and should be corrected by you as soon as possible to avoid a penalty. With regard to intentional tax evasion, however, the situation is different. As tax advisors, we strongly advise against intentionally providing false information. Nevertheless, it must be assumed here that the person is aiming to avoid getting caught. A voluntary disclosure therefore only makes sense if there is a risk that the tax evasion will be uncovered. One factor that often leads to a voluntary disclosure is a planned tax audit. In this context, those affected are generally aware that the tax evasion will be uncovered. It is also important to note that a voluntary disclosure only makes sense if the respective offense has not yet become time-barred.

How is a voluntary disclosure carried out?

A voluntary disclosure must always be submitted to the competent tax office. Essentially, the purpose of a voluntary disclosure is to rectify the “errors” and fully correct the income/information reported. As part of this process, you should directly identify and correct the false information provided. With regard to the relevant time period, it is also important to note that a voluntary disclosure can be quite complex. Let’s assume that there was more than one tax violation; in that case, you must correct and report all violations from the past 10 years that are not already time-barred. This completeness is crucial to actually avoid a heavy penalty. If the information is incomplete or a new error is made, normal criminal proceedings will follow the voluntary disclosure. It should also be noted that the disclosure should always be addressed only to the tax office and not to the police or the public prosecutor’s office. Even the mere announcement of a voluntary disclosure should be avoided. In this case, the tax office could initiate proceedings without there already being a valid voluntary disclosure on file.

There are no specific requirements regarding the exact format of a voluntary disclosure. Ultimately, the only important thing is that everything is stated correctly and completely. In any case, the written form is preferable. As tax advisors, we advise everyone to consult an expert. With the support of a tax law attorney, you can ensure that the voluntary disclosure is submitted correctly and thus achieves the desired outcome.

What happens after the voluntary disclosure?

Once the voluntary disclosure is received by the tax office, criminal proceedings are first initiated through the Office for Fines and Criminal Matters (BuStra). The voluntary disclosure is reviewed within this framework. If it turns out that the voluntary disclosure was made correctly and completely, the proceedings are discontinued without any penalty. If the voluntary disclosure contains errors, the proceedings will continue. However, assuming the voluntary disclosure is completed correctly, there will be no legal prosecution. Criminal prosecution is thus averted. The amount of the back payment is then determined based on supporting documents and a more detailed review. The person concerned will be contacted in this regard and may be asked to provide further evidence. Ultimately, taxes, interest, and any surcharges must be paid retroactively. However, by taking this route, you have avoided prison or a heavy fine.

Tax Consulting in Düsseldorf and Oberhausen

With our offices in Düsseldorf and Oberhausen, we can offer you comprehensive tax services. Contact us to schedule a consultation. We can also provide you with comprehensive support in the area of tax law. To avoid unintentional tax evasion, however, you should rely on the expertise of our tax advisors right away.