Self-disclosures in tax matters have recently become a sensitive topic for many taxpayers – especially against the backdrop of ongoing collective information requests by the tax investigation department in the area of cryptocurrencies/bitcoins. Since January 1, 2015, there has been an important change in German tax law that is particularly relevant for those who are thinking about filing a self-disclosure. Pursuant to Section 371 of the German Fiscal Code (AO), a voluntary disclosure is excluded as of this date if the tax benefit, i.e. the tax evaded, exceeds an amount of EUR 25,000 per offense. This limit was previously EUR 50,000. Advisory practice shows that in the case of income from cryptocurrencies not declared in the past, this limit is quickly exceeded.
The EUR 25,000 limit and § 398 a AO: An important change since 2015
As of the aforementioned date, a voluntary disclosure is excluded if the tax benefit, i.e. the tax evaded, exceeds an amount of EUR 25,000 per offense (this is an exemption limit and not an allowance). However, there is a way to circumvent this regulation: Taxpayers can voluntarily make use of the provision of § 398 a AO. In doing so, they must pay the tax arrears and, within a reasonable period of time, pay a surcharge on the evaded tax debt as well as interest on evasion or arrears. In return, they retain immunity from tax evasion.
The staggered surcharge system as of 2015
Since 2015, a staggered surcharge has applied in accordance with Section 398 a AO. The amount of the surcharge depends on the amount evaded:
- 10% of the evaded tax if the amount of evasion does not exceed EUR 100 thousand,
- 15% of the evaded tax if the amount of evasion exceeds EUR 100 thousand and does not exceed EUR 1 million,
- 20% of the evaded tax if the amount of evasion exceeds 1 million.
This staggered system significantly increases the cost of “buying” immunity from prosecution, which is consistent with the policy intent.
Important details and uncertainties
However, there are important details and uncertainties that must be considered. For example, the provision of Section 398 a AO does not apply if the voluntary declaration is excluded for other reasons, for example, if it is incomplete. If this is determined later, the criminal proceedings can be resumed. In addition, the payment of the surcharge pursuant to Section 398 a AO does not lead to the so-called consumption of criminal action, which means that no legal security is created.
A further complication arises in the assessment of the surcharge: Pursuant to Sec. 398 a para. 2 AO, the percentage may not be applied to the balance between sales tax and input tax. Instead, the percentage applies to the individual, unnetted amounts of evaded sales tax and input tax. This regulation leads to financial challenges for taxpayers, especially in the area of sales tax.
The practice: imputation and ambiguities
A practical example illustrates the situation: In March 2023, a taxpayer submits a voluntary disclosure for undeclared gains from the sale of cryptocurrencies/Bitcoins of the year 2021, whereby the additional tax amounts to EUR 110k. He pays a surcharge of 15% on this amount. Due to liquidity problems, he cannot pay the interest within the set time limit, which means that the criminal proceedings will not be discontinued. The penalty already paid will not be refunded. Interestingly, if the court imposes a fine for this tax evasion, it may credit this amount against a fine. However, this is not a mandatory requirement, but is left to the discretion of the court.
It is important to emphasize that despite the self-disclosure and the payment of the surcharge pursuant to Section 398 a AO, there is no absolute legal certainty. Legal consequences may still follow, especially if the information is incomplete or there are other reasons for excluding impunity.
Overall, this example illustrates the complexity and uncertainty associated with voluntary disclosure. It is therefore advisable to seek advice on such matters from experienced tax professionals in order to understand and respond appropriately to potential risks. Precise knowledge of the legal provisions is crucial to avoid legal problems and to find the best possible solution for the individual situation.
s&w will be happy to assist you with tax advice on self-disclosures – see also our reference, among other many criminal tax cases (among others cryptocurrencies/bitcoins) we have helped to succesfully resolve for our clients. Together with our partner law firms specialized on criminal tax law.
Photo: Jievani Weerasinghe (Unsplash)
Disclaimer: We assume no liability for the accuracy and completeness of the information. The information provided here does not constitute recommendations for action.