Tax evasion penalty - what you should know
Tax evasion is a serious offence that can result in significant penalties. In Germany, tax evasion is severely punished in order to minimise tax losses and preserve the integrity of the tax system. The state loses billions every year due to tax offences.
This lack of funds burdens all honest taxpayers and restricts the community’s ability to act. At the same time, the pressure to prosecute is increasing: tax authorities are increasingly relying on digital technologies to uncover discrepancies.
But what exactly does tax evasion mean and what penalties can be expected for tax evasion?
In criminal tax law, tax evasion refers to the wilful concealment or misrepresentation of tax-relevant information to the tax authorities. The offence is enshrined in Section 370 of the German Fiscal Code (AO) and comprises various acts:
- Incorrect or incomplete information in the tax return
- Failure to provide information to the tax office in breach of duty
- Failure to use tax stamps or tax stamps in breach of duty
The decisive factor is intent: the taxpayer must act deliberately in order to reduce taxes or obtain unjustified tax advantages. This distinguishes tax evasion from negligent errors in the tax return.
The legal basis for the prosecution of tax evasion is complex. In addition to Section 370 AO, other sections of criminal tax law also play a role. The tax investigation department, as a specialised unit of the tax authorities, investigates suspected cases. It has extensive powers to investigate tax offences.
The law provides for severe penalties for tax evasion. § Section 370 para. 3 AO regulates particularly serious cases, for which prison sentences of up to ten years are possible. The seriousness of the offence is measured, among other things, by the amount of tax evaded and the degree of criminal energy.
Entrepreneurs and private individuals should not underestimate the consequences of tax evasion. The consequences go far beyond financial aspects and can jeopardise both personal and professional livelihoods.
Anyone who cheats on their tax return and is caught can expect severe consequences. The penalty for tax evasion is based on Section 370 (1) AO and can take the form of a fine or even a prison sentence.
The amount of the penalty is determined on a case-by-case basis and depends on various factors, in particular the amount of tax evaded. For smaller amounts, a fine may be sufficient, while larger sums may result in several years’ imprisonment.
Sentencing is based on a complex system that takes into account the severity of the offence, the duration of the evasion and the behaviour of the offender, among other things.
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Tax evasion penalty
Based on current information from 2024, the sentencing for tax evasion is as follows
- Evaded taxes: Up to 1,000 euros
- Penalty: Proceedings may be discontinued subject to conditions
- Evaded taxes: Up to 50,000 euros
- Penalty: fine
- Evaded taxes: Up to 100,000 euros
- Penalty: fine or prison sentence with the possibility of probation
- Evaded taxes: Up to 1,000,000 euros
- Penalty: prison sentence and possibly a fine, probation possible
- Evaded taxes: Over 1,000,000 euros
- Penalty: imprisonment and possibly a fine, no probation possible
This table shows that the penalty increases progressively with the amount of tax evaded. Particularly from a sum of 100,000 euros, criminal prosecution becomes significantly more severe.
- The amount of the fine is calculated in daily rates. The number of daily rates depends on the severity of the offence, while the amount of a single daily rate depends on the income of the convicted person.
- A custodial sentence (imprisonment) may be imposed for tax evasion of 100,000 euros or more. For amounts over one million euros, a suspended sentence is excluded, which underlines the seriousness of the offence.
It is important to emphasise that each case is considered individually. Factors such as the duration of the tax evasion, the degree of criminal energy and the offender’s willingness to co-operate are taken into account when sentencing.
It is advisable for entrepreneurs and private individuals to handle tax matters with the utmost care. If there are any uncertainties, expert advice should be sought at an early stage to minimise potential risks and ensure compliance with tax regulations.
Tax evasion statute of limitations
Various limitation periods play a decisive role in the context of tax evasion. It is important to know these periods in order to be able to assess the long-term consequences of tax offences.
Differentiation of the types of limitation periods:
Limitation period for payment:
- Concerns tax claims that have already been assessed
- Basic period: 5 years
- In the case of criminal relevance: 10 years
Limitation period for assessment:
- Regulates the period for changes to the tax assessment notice
- Standard period: 4 years
- For tax evasion: 10 years
Statute of limitations for criminal prosecution:
- Simple cases: 5 years
- Particularly serious cases: 15 years
- Start of limitation period: At the end of the offence
Special features and practical relevance:
- Interruption of the limitation period: Certain official measures can interrupt the limitation period and restart the limitation period.
- Dynamic legislation: Legislators have adjusted limitation periods in the past, sometimes with retroactive effect.
In business practice, this means that even tax issues that occurred a long time ago can still become relevant. The tax authorities have extensive powers to scrutinise and pursue older cases.
In view of this complex legal situation, it is advisable for entrepreneurs to always handle their tax affairs with the utmost care and transparency. In the event of uncertainty or suspicion of irregularities, it is advisable to consult experts in criminal tax law at an early stage in order to minimise potential risks and, if necessary, take corrective action in good time.
Conditions for voluntary disclosure - chances of exemption from punishment
A voluntary disclosure offers tax evaders the opportunity to report tax offences committed and, under certain conditions, obtain immunity from prosecution. This is an important option for avoiding legal consequences and rectifying your own tax situation. However, voluntary disclosure in cases of tax evasion can only lead to impunity if certain conditions are met:
- Completeness: the voluntary disclosure must correct all incorrect or incomplete information in full within the correction period.
- Timeliness: The voluntary disclosure must be made before any barring grounds apply, e.g. the discovery of the offence or before the announcement of a preliminary investigation.
- Subsequent payment: The evaded taxes plus interest must be paid within a set period.
Procedure and legal basis for voluntary disclosure
The process of a voluntary disclosure follows clearly defined legal requirements and consists of several steps:
- Preparation: Gathering all relevant documents and information in order to prepare a complete and accurate voluntary disclosure.
- Preparation of the voluntary disclosure: The voluntary disclosure must be made in writing and contain detailed information on the amount of the tax bases that have been subsequently declared and the tax years concerned.
- Submission: The voluntary disclosure is submitted to the relevant tax office. It is advisable to do this in consultation with a tax consultant or specialised lawyer in order to avoid errors.
- Examination by the tax office: The tax office examines the information and calculates the taxes to be paid in arrears.
- Back payment: The evaded taxes plus interest must be paid in full within the deadline set by the tax office.
The legal basis for voluntary self-disclosure with exemption from prosecution is set out in Section 371 of the German Fiscal Code (AO). This regulation ensures that taxpayers who voluntarily report their tax evasion are not prosecuted under certain conditions.
Advantages and requirements for a voluntary disclosure exempting from prosecution
The voluntary disclosure offers several advantages for the taxpayer:
- Exemption from punishment: If all conditions are met, voluntary disclosure leads to exemption from punishment and prevents a conviction by the court.
- Reduction of prosecution costs: By making a voluntary disclosure, the costs and burdens of criminal proceedings can be avoided.
- Restoration of tax honesty: voluntary disclosure makes it possible to rectify your own tax situation and avoid future tax offences.
Your professional help with tax evasion
Tax evasion is a serious offence that can have considerable legal and financial consequences. In such situations, professional help is essential. Experienced advice can not only help to mitigate the severity of the penalties, but also ensure that all legal requirements are correctly met.
At LW-P Lüders Warneboldt, we offer comprehensive support in all aspects of tax evasion. Our experts in the fields of tax advice, legal advice and auditing work together on an interdisciplinary basis to provide you with the best possible advice and representation. Here are some reasons why professional help with tax evasion is so important:
- Complexity of the law: The legal rules on tax evasion are complex and extensive. Our experts are familiar with the current regulations and can ensure that your voluntary disclosure is correct and complete.
- Risk of voluntary disclosure: An incorrect voluntary disclosure can have serious consequences. Our experienced advisors will help you to gather all the necessary information and submit your voluntary disclosure in good time.
- Avoiding mistakes: Even small mistakes can lead to considerable penalties. We help you to fulfil your tax obligations precisely and avoid mistakes.
- Defence in an emergency: If criminal proceedings are brought, we will be at your side as competent defence lawyers and will stand up for your rights.
Do not hesitate to seek professional help when it comes to tax evasion. Arrange a consultation with the experts at LW-P Lüders Warneboldt today.
Contact us for a confidential and non-binding initial consultation. Rely on our expertise and many years of experience to clarify your tax matters with legal certainty and avoid future risks.
FAQ - Quick answers to frequently asked questions
Simple tax evasion exists if there is no case of particularly serious tax evasion, in particular gang tax evasion or large-scale tax evasion (from €50,000 per offence). In contrast to serious tax evasion, the amounts and criminal energy involved are lower.
The penalty varies depending on the severity of the case. It ranges from fines to prison sentences of up to 5 years, in particularly serious cases even up to 10 years. The exact amount depends on factors such as the amount of tax evaded, the duration of the offence and the offender’s personal circumstances.
Tax evasion of 50,000 euros is usually punishable by a fine. A custodial sentence is possible, but is often suspended unless there are other aggravating circumstances. The exact penalty depends on the individual case and the court’s decision.
A correctly executed voluntary disclosure can lead to exemption from punishment. The prerequisites are completeness, timeliness and the subsequent payment of the evaded taxes plus interest. For higher amounts (from 25,000 euros), a penalty surcharge must also be paid in order to obtain immunity from prosecution.
An entry in the police clearance certificate is made for convictions involving a fine of more than 90 daily rates or repeated convictions. No entry is made for lesser penalties or a successful voluntary disclosure.
Tax evasion refers to the incorrect or untimely submission of tax returns to the tax authorities. In contrast to tax evasion, this does not have to be intentional; reckless behaviour can also constitute tax evasion. The consequences are generally milder than in the case of wilful tax evasion, but can still result in severe fines.
