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Pros­e­cu­tion of tax crimes and tax-re­lat­ed ad­min­is­tra­tive of­fences in 2017

  • Every year, the Federal Ministry of Finance compiles statistics that provide information on the results of (a) tax investigations and (b) the prosecution of tax crimes and tax-related administrative offences. The statistics are based on reports filed by the German Länder .
  • Germany’s tax offices have special units that handle administrative fines and criminal matters. During the most recent reporting period, these units completed a total of roughly 62,000 criminal proceedings pertaining to tax-related crimes. In addition, they completed approximately 5,000 proceedings for tax-related administrative offences that resulted in fines totalling over €168 million.
  • During this same period, Germany’s tax investigation units processed a total of 35,000 cases nationwide. These investigations found approximately €2.9bn in unpaid taxes due and resulted in the imposition of prison sentences encompassing a total of 1,586 years.

Introduction

Germany keeps statistics on tax crimes and equivalent offences such as tax evasion (section 370 of the German Fiscal Code [ Abgabenordnung ]) and commercial or organised activities resulting in the underpayment or non-payment of VAT (section 26c of the German VAT Act [ Umsatzsteuergesetz ]). In general, fines or prison sentences are imposed as punishment for such offences.

In contrast, tax-related administrative offences constitute a different category of offence that is not subject to criminal law but is still punishable by a fine under Germany’s tax laws; examples here include the reckless understatement of tax (section 378 of the Fiscal Code) and the failure to fully retain and remit withholding taxes due (section 380 of the Fiscal Code).

Recklessness

is an especially severe form of negligence and is deemed to occur when a person commits a particularly serious violation of due diligence requirements and this violation is particularly worthy of blame because the person could easily have foreseen and avoided the outcome.

This article provides an overview of the statistics pertaining to tax crimes and tax-related administrative offences in 2017. The statistics cover the taxes on income, property and transactions administered by the Länder but do not include excise and local authority taxes.

Taxes on income and property

are levied on earnings/income (e.g. income tax, corporation tax, trade tax) and property (e.g. inheritance tax).


Taxes on transactions

are levied on legal and business transactions (e.g. VAT).

Results from tax office units responsible for administrative fines and criminal matters

In cases where public prosecutor’s offices do not hold jurisdiction, the Länder tax office units responsible for administrative fines and criminal matters are in charge of investigating and prosecuting tax crimes and tax-related administrative offences. These units make decisions on initiating or discontinuing criminal tax or administrative fine proceedings and have the power to request penalty orders, hand criminal matters over to a public prosecutor’s office, and impose fines.

Prosecution of tax crimes

In 2017, the Länder tax office units that handle administrative fines and criminal matters concluded criminal proceedings on a nationwide total of 62,261 cases. Figure 1 shows the outcomes of the criminal proceedings concluded by these units.

Number of criminal proceedings completed by tax office units in charge of administrative fines and criminal matters
Num­ber of crim­i­nal pro­ceed­ings com­plet­ed by tax of­fice units in charge of ad­min­is­tra­tive fines and crim­i­nal mat­ters
Figure 1
Number of criminal proceedings completed by tax office units in charge of administrative fines and criminal mattersAnzahl
Discontinuation of proceedings 23978
Discontinuation upon fulfilment of stipulated conditions16309
Discontinuation due to insignificance of offence 8144
Prosecution waived in specific cases6675
Penalty order requested6376
Turned over to public prosecutor’s office606
Turned over to a different tax office’s unit for administrative fines and criminal matters173

23,978 criminal proceedings were discontinued pursuant to section 170(2) of the Code of Criminal Procedure ( Strafprozessordnung ). Of these, 9,321 cases were discontinued following voluntary disclosures of tax evasion involving amounts of up to €25,000. In 606 other cases, the decision was made to refrain from prosecution after the taxpayer made a payment to the Treasury (these payments totalled approximately €9.6 million). 16,309 criminal proceedings were discontinued upon the fulfilment of conditions and instructions imposed under section 153a of the Code of Criminal Procedure; these conditions included demands for payment totalling €55.6 million.

During this same period, public prosecutor’s offices and courts closed out 13,146 criminal proceedings with final and binding decisions. Figure 2 shows the outcomes of the criminal proceedings concluded by public prosecutor’s offices and courts.

Refraining from prosecution in specific cases:

The decision may be made to refrain from prosecution in cases where taxpayers submit voluntary disclosures of tax evasion involving amounts of over €25,000. Prosecution is waived in accordance with section 398a of the Fiscal Code in cases where the taxpayer pays the following amount to the Treasury (in addition to back payment of taxes owed):

  • 10% of the evaded tax when the amount evaded does not exceed €100,000,
  • 15% of the evaded tax when the amount evaded exceeds €100,000 but does not exceed €1,000,000,
  • 20% of the evaded tax when the amount evaded exceeds €1,000,000.
Number of criminal proceedings concluded by public prosecutor’s offices and courts
Num­ber of crim­i­nal pro­ceed­ings con­clud­ed by pub­lic pros­e­cu­tor’s of­fices and courts
Figure 2
Number of criminal proceedings concluded by public prosecutor’s offices and courtsNumber
Penalty orders5955
Discontinuation for other reasons3514
Judgements imposing prison sentence or fine1872
Discontinuation upon fulfilment of stipulated conditions 1597
Prosecution waived in specific cases124
Acquittals84

Cases in which public prosecutor’s offices and courts discontinued criminal proceedings upon the fulfilment of conditions and instructions imposed under section 153a of the Code of Criminal Procedure were settled through payments totalling roughly €25.7 million. In 124 cases where taxpayers voluntarily disclosed that they had evaded taxes by amounts exceeding €25,000, criminal prosecution was waived after the taxpayers paid additional fines that, taken together, totalled approximately €3.0 million.

In 2017, 7,879 judgements and penalty orders were issued for tax evasion under section 370 of the Fiscal Code. The amount of evaded taxes for which fines and prison sentences were imposed totalled €1.21 billion.

Prosecution of tax-related administrative offences

In addition to processing cases of tax crimes, the tax office units that handle administrative fines and criminal matters also completed a total of 5,032 administrative fine proceedings nationwide in 2017. This led to the issuance of 3,255 administrative fine notices. Fines were set by courts in 57 other cases.

Fines are imposed in particular for the following offences: reckless understatement of tax (section 378 of the Fiscal Code), general minor tax fraud (section 379 of the Fiscal Code), failure to fully retain and remit withholding taxes due (section 380 of the Fiscal Code), activities resulting in the underpayment or non-payment of VAT (section 26b of the VAT Act), violations of the Tax Consultancy Act ( Steuerberatungsgesetz ), and violations of the Administrative Offences Act ( Gesetz über Ordnungswidrigkeiten ). In addition, fines can be imposed under section 29a of the Administrative Offences Act, which provides for the confiscation of proceeds gained from the commission of an administrative offence.

Figure 3 shows the number of legally binding administrative fine notices that were issued in 2017 for the most common tax-related administrative offences.

Number of legally binding administrative fine notices issued for tax-related administrative offences
Num­ber of legal­ly bind­ing ad­min­is­tra­tive fine no­tices is­sued for tax-re­lat­ed ad­min­is­tra­tive of­fences
Figure 3
Number of legally binding administrative fine notices issued for tax-related administrative offencesnull
Underpayment or non-payment of VAT780
Failure to fully retain and remit withholding taxes due714
General minor tax fraud692
Reckless understatement of tax477
Administrative offences under the Administrative Offences Act281
Confiscation of proceeds gained from the commission of an administrative offence180
Unauthorised assistance in tax matters133
Administrative offences under the Tax Consultancy Act15
Other administrative offences2

The fines imposed on the basis of legally binding administrative fine notices totalled €168.4 million. Violations of the Administrative Offences Act accounted for the bulk of these fines (€157.3 million). Fines for reckless understatement of tax totalled €3.3 million and were based on understated taxes totalling €20 million. Fines for unpaid or underpaid VAT totalled €1.8 million and were based on unpaid or underpaid VAT totalling €67.4 million. €6 million in fines were imposed for other administrative offences.

Results of tax investigations

Remit of Germany’s tax investigation units

Not all taxpayers comply with their tax obligations – that is, their responsibility to declare their full income – to the extent required by law. Taxpayers who provide the revenue authorities with incomplete or incorrect information – with the result that taxes cannot be assessed in full or in time – may be committing tax evasion. In these cases, and in other cases that are classified as tax crimes, Germany’s tax investigation units are called upon to take action. These units are staffed by revenue administration employees who are granted special powers.

The responsibility for administering taxes on income, property and transactions lies with Land revenue authorities. This means that they are also responsible for detecting and prosecuting tax crimes and tax-related administrative offences in connection with these taxes. In some Länder , tax investigation units are situated within regular tax offices. Other Länder have set up separate tax offices that are specifically tasked with conducting tax investigations.

The tax investigation units of the Länder play an important role in securing tax revenue. The results of their activities in 2017 are presented in greater detail below. The statistics do not include special excise duties, import VAT or ancillary tax payments such as costs and interest. Additional revenue collected on the basis of voluntary disclosures is also not included.

Number of cases investigated

The tax investigation units of the Länder mainly conduct investigation audits. In recent years, however, they have also been heavily involved in responding to requests for administrative and legal assistance. The investigation units receive requests for administrative and legal assistance from other authorities asking the units to carry out official acts – such as the procurement of evidence – on behalf of the requesting authority.

In 2017, tax investigation units completed a total of 34,712 audits. 25,375 of these audits consisted of tax investigations, and 9,337 consisted of responses to requests for administrative and legal assistance.

Determining additional taxes owed

Investigation audits are initiated in cases where an initial suspicion exists. During the audits, tax investigators identify all of the tax bases for the taxpayer in question, regardless of their relevance to any criminal act. If criminal proceedings are conducted, the investigation findings that are relevant to the crimes committed are then used as the basis for determining the severity of punishment. The statistics for 2017 show the provisional amounts of additional taxes owed, as determined by tax investigation units. These provisional results allow an accrual-based presentation with regard to the tax investigation audits concluded in a particular year. The statistics include all the tax investigation results that were used to assess taxes, regardless of whether such results played a role in determining the severity of punishment.

In 2017, the tax investigation units of the Länder found a total of approximately €2.9 billion in additional taxes owed. Figure 4 breaks down this total amount according to type of tax.

Amount of unpaid taxes aowed, by tax type
Figure 4

Initiation and conclusion of criminal proceedings

In 2017, a total of 13,409 criminal proceedings were launched nationwide on the basis of findings by tax investigation units. For those criminal proceedings that were concluded in 2017, German courts handed down prison sentences totalling 1,586 years and imposed fines totalling €29.4 million.

In certain cases, public prosecutor’s offices may, with the consent of the court responsible, dispense with public charges on the condition that the accused person pay a sum of money (section 153a of the Code of Criminal Procedure). In 2017, the sums that were paid accordingly totalled €50.3 million nationwide.

Reckless violations of tax laws are subject to administrative fines under the Administrative Offences Act. In 2017, final and binding fines totalling €153.4 million were imposed for such violations.