BGH delivers ruling on estimates in criminal proceedings for tax offenses

News  >  BGH delivers ruling on estimates in criminal proceedings for tax offenses

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In a judgment from February 10, 2022, Germany’s highest civil court – the Bundesgerichtshof (BGH) – held that while the amount of taxes evaded can be estimated in criminal proceedings for tax offenses, not every method for estimating them is always appropriate (case ref.: 1 StR 484/21).

While it is indeed true that, in the absence of accurate data, the extent of the tax evasion can be estimated in the course of proceedings, this does not mean that every method of estimation is suitable in each case, cautions MTR Legal Rechtsanwälte, a full-service law firm whose areas of expertise include tax law.

Case in point: the aforementioned ruling of the Bundesgerichtshof. In this case, the defendant was handed a two-year-and-six-month custodial sentence by Hamburg’s regional court, the Landgericht Hamburg, for tax evasion and attempted tax evasion.

The Court found that the defendant had committed what is referred to as “Doppelverkürzung”, i.e., they had failed to keep complete records of the purchase and sale of certain goods at the company as a means of paying less tax, and had for a number of years been instructing their tax consultant – who was unaware of all this – to submit tax returns for corporation tax, sales tax, and local business taxes that reflected this, with these only showing activity that had been properly accounted for.

Since the accounts did not provide information on all purchases and sales, and invoices were missing in some instances, the Landgericht generated an estimate of the amount of taxes that had been evaded based on calculations concerning the flow of goods for each of the individual tax periods in question, with the calculations being informed by the data from the accounts. The estimate indicated that the defendant had evaded taxes to the tune of several hundred thousand euros.

Despite confirming that calculations based on the circulation of money and goods are legitimate methods for estimating the extent of tax evasion, the BGH ruled that they were not appropriate in this case. This is because they did not allow the erosion of the tax base to be documented in a manner that was free from error. The Court clarified that an estimation on either of these bases should always draw on both a verified initial balance sheet or inventory as well as a verified closing balance sheet or inventory. This was not the case here, as it could not be assumed that the actual stock on-hand on the respective reporting date could be derived from the company’s recorded inventory lists. Such an assumption can only be made if there is precise data suggesting that this is in fact the case. The BGH therefore concluded that generating an estimate based on the flow of goods was not appropriate in this instance.

The team of tax experts at MTR Legal Rechtsanwälte advises on criminal law, including proceedings for tax offenses.

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