Tax Evasion: Exemption through Voluntary Disclosure

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Returning to Tax Legality with Voluntary Disclosure

Those who have concealed taxable income or provided incorrect or incomplete information to the tax authorities may be guilty of tax evasion. If tax evasion is discovered, the taxpayer faces severe penalties, ranging from fines to several years of imprisonment. However, the legislator has still kept open the possibility of returning to tax legality without punishment through voluntary disclosure.

Voluntary disclosure for tax evasion can only lead to exemption from punishment if it meets various conditions. It must be made in a timely manner, i.e., before the tax evasion has been discovered by the tax authorities. It must also be complete, meaning it must include all tax-relevant information for the past ten years so that the tax office can assess the tax. Even small errors can render the voluntary disclosure ineffective and result in punishment for tax evasion, according to the business law firm MTR Legal Rechtsanwälte, which also advises on tax law and has extensive experience in creating effective voluntary disclosures.

Combating Black Money

With technological advancements, the means for tax authorities to uncover tax evasion have improved significantly. Thanks to increasing digitalization and networking, tax offenses that occurred years ago can now be discovered. Additionally, international cooperation between states has intensified, and black money in former tax havens is no longer safe from discovery. More than 100 countries now participate in the international exchange of financial information. Tax authorities thus have increasingly better tools to combat black money. Concealing untaxed income from tax authorities is becoming increasingly difficult.

Anyone fearing prosecution for tax evasion should act accordingly. It is important to understand when tax evasion occurs. This is generally the case if the taxpayer has made incorrect or incomplete statements in their tax return or has failed to submit a declaration of taxable income. If the taxpayer acted only negligently, it might be considered an administrative offense. For a tax crime like tax evasion, the taxpayer must have acted intentionally. The line between negligence and intent is narrow, and the tax authorities or the tax court must be convinced that the taxpayer acted only negligently.

Penalties for Tax Evasion

If the taxpayer acted intentionally, consistent sanctions from fines to imprisonment are threatened. Voluntary disclosure can be the bridge to exemption from punishment, but only if it meets the legislator’s requirements.

It is crucial that voluntary disclosure is made in a timely manner, not when the taxpayer already suspects that a tax investigation is imminent. It must also be complete, including all tax-relevant information for the past ten years. All incorrect or incomplete statements must be corrected or supplemented in the voluntary disclosure. If incorrect information is provided again, the voluntary disclosure becomes ineffective. If essential evidence cannot be provided, the taxpayer should make generous estimates to their detriment.

Professional Support for Voluntary Disclosure

Voluntary disclosure involves high stakes, as tax evasion can result in imprisonment of up to 5 years and, in particularly severe cases, up to ten years. Theoretically, the taxpayer can prepare a voluntary disclosure themselves. However, given the potential penalties, this is not advisable, as even small errors can render the voluntary disclosure ineffective. Therefore, it is sensible to seek the assistance of experienced attorneys who know what information a voluntary disclosure must contain to be effective. With a successful voluntary disclosure, the taxpayer must pay the outstanding taxes plus interest. Additionally, a special surcharge may be due. Once the payments are made, the taxpayer need not fear further criminal consequences. MTR Legal Rechtsanwälte advises on tax law and tax criminal law. Our attorneys have extensive experience with voluntary disclosures for tax evasion and handle your concerns with the necessary discretion and confidentiality.

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