Germany: Self-disclosure rule amendments bring good and bad news for corporates

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Germany: Self-disclosure rule amendments bring good and bad news for corporates

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Hartwig Welbers

Self-disclosure allows tax evaders to avoid prosecution by coming forward of their own volition and paying the tax evaded. In principle, this opportunity is to be retained, although many believe that the current rules need to be tightened. The Ministry of Finance has now published draft amending legislation to that end. This subject is relevant to corporates in respect of their mass data filings of monthly VAT and payroll withholding. Because it is not easy for the authorities to distinguish between an error and a wilful attempt to defraud, there is a growing tendency to see corrected returns as failed self-disclosures (because they often cannot meet all the formal requirements) and to open criminal proceedings. The new ministerial draft now published tackles this issue by re-introducing partial self-disclosure for monthly or quarterly VAT or payroll withholding tax returns. A corrected return will not fail in respect of the corrections.

The bad news is that the tax audit preclusion of self-disclosure is to be tightened. Up to now, self-disclosure is no longer possible once a tax auditor sets foot on the premises. This point in time is to be brought forward to the notification to the company of the coming audit and audit concept is to be extended to include VAT, withholding tax and other specifically targeted reviews and examinations. The implications of this on very large corporations with a tax auditor more or less permanently in residence remain, however, open.

The Ministry of Finance does not see the new rules as burdensome on compliant businesses. This, however, overlooks the reality of the effort needed to prepare and substantiate a self-disclosure statement of more than errors in monthly or quarterly VAT or payroll withholding tax returns, say, to protect corporate officers from prosecution for having taken a risky position. This is, in particular, true as the limitations period will be extended to 10 years. One also needs to bear in mind the continuing discussion on a possible corporate criminal law to sanction a corporation for wrong-doing, rather than just the employees acting on the company's behalf. All things considered, effective supervision of a company's compliance is becoming more and more essential.

Hartwig Welbers (hartwig.welbers@de.pwc.com)

PwC

Tel: +49 711 25034 3165

Website: www.pwc.de

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