Voluntary disclosure for tax purposes
Following numerous high-profile voluntary disclosures in recent years, which have been the subject of extensive coverage in the daily news and on talk shows, the voluntary disclosure of tax matters a term familiar to almost everyone. It refers to subsequent declarations of domestic and foreign income. Stricter rules have been in force since 1 January 2015. However, even under the current legal framework, a voluntary disclosure leading to immunity from prosecution despite higher demands, still in the in the vast majority of cases, the desired result.
Hidden time bombs in overseas deposits and accounts
The most high-profile cases almost without exception involved foreign bank accounts and securities accounts, and the associated evasion of tax on investment income. This sometimes went so far that virtually anyone with cash holdings or securities investments abroad was suspected by the general public of being a potential tax evader. However, investments and businesses abroad are commonplace, particularly in the case of larger fortunes and companies, and are not necessarily unlawful.
It is true that the number of voluntary disclosures relating to the evasion of capital gains tax has indeed fallen significantly. Nevertheless, there are still numerous undeclared accounts and investment portfolios held abroad by private individuals and so-called offshore companies. In some cases, those responsible are not even fully aware of the details. This occurs in particular when such undeclared assets are bequeathed to the next generation without the heirs having been adequately informed by the testator about the tax situation. However, the heirs are just as obliged to declare the income they receive as the testator was before them.
The future automatic exchange of information, to which almost all major countries – including the majority of so-called „tax havens“ – have committed since 2014, came into effect on 1 January 2017. As a result, a large number of criminal tax proceedings were initiated as soon as the tax authorities had analysed the data provided.
How tax evasion can still happen
However, tax evasion is not limited to investment income, but applies in principle to almost all taxable transactions. Furthermore, the offence can be committed not only through active conduct but also through mere omission. As such, business owners in particular are regularly targeted by tax investigators where there are grounds for suspicion.
When it makes sense to make a voluntary disclosure
Under certain circumstances, voluntary disclosure is no longer an option. According to the legislature, this is generally the case where the offence would, in all likelihood, be uncovered even without any action on the part of the taxpayer.
Preparing a voluntary disclosure therefore first requires an assessment of whether the conditions are met or are at risk of not being met in the specific case in question. However, even in cases where an effective voluntary disclosure is no longer an option, the taxpayer’s disclosure and cooperation can sometimes lead to a significant reduction in the penalty.
In addition to the procedural requirements, the tax bases must be disclosed in full and determined for all relevant types of tax and tax periods. This may prove to be a lengthy and complicated process in individual cases. In particular, where not all tax bases can be determined in good time, the necessary experience is required to make a provisional – and possibly partial – estimate, so as not to jeopardise the immunity from prosecution afforded by the voluntary disclosure.
We advise and represent clients comprehensive in all aspects of the Criminal tax law and the subsequent declaration of income from home and abroad – both both in and out of court.