Tax Compli­ance Manage­ment System — tax risk miti­ga­tion and reduction

The initia­tion of crimi­nal tax procee­dings by German tax offices, mostly as a result of simple unin­ten­tio­nal errors, accor­ding to the motto “shoot first and ask ques­ti­ons later” is now common prac­tice, which many a busi­ness mana­ger has alre­ady had to expe­ri­ence first hand. The core ques­tion here regu­larly lies in the demar­ca­tion between simple error correc­tion on the one hand and (actually unde­si­ra­ble) volun­t­ary disclo­sure exemp­ting from punish­ment on the other.

On May 23, 2016, the Fede­ral Minis­try of Finance issued a state­ment in the Appli­ca­tion Decree of the Fiscal Code (Anwen­dungs­er­lass der Abga­ben­ord­nung, AEAO) on Section 153 on the ques­tion of the demar­ca­tion between the decla­ra­tion of correc­tion pursu­ant to Section 153 AO and the volun­t­ary disclo­sure pursu­ant to Section 371 AO. There, it is stated in para. 2.6: “If the taxpayer has set up an inter­nal control system that serves to fulfill tax obli­ga­ti­ons, this may, if neces­sary, consti­tute an indi­ca­tion that may speak against the exis­tence of intent or reck­less­ness, but this does not exempt an exami­na­tion of the indi­vi­dual case.”