Typical problems – current case law – defence options
Most proceedings for evasion of inheritance or gift tax do not start with an offshore structure. They start with a misunderstanding. “That was below the tax-free allowance.” “The notary reported it anyway.” “Nobody outside the family knew about the account abroad.” Or “That gift is so old, it must be time-barred by now.” Sentences like these stand at the beginning of many criminal tax mandates.
In inheritance and gift tax law, civil law, family law, valuation law and criminal tax law sit very close together. Anyone who looks only half-heartedly at one point quickly triggers a duty to notify, to file or to correct at another. You will find further information on our focus on criminal tax law and on attorney Dr. Tobias Rudolph on the linked pages.
What is typical is not the blatant lie but the omission. It is the forgotten prior gift, the incomplete estate inventory, the notarised contract drafted without a look at the history, and the mistaken belief that a family matter is too trivial to have tax consequences. That is exactly why a look at the practical hot spots is worthwhile.
The most common initial mistake – confusing the notification with the tax return
Many people affected simply wait for a form from the tax office. That is precisely the error in thinking. In German inheritance and gift tax law, the process regularly begins not with the tax return but with the notification of the acquisition. Under Section 30 of the German Inheritance and Gift Tax Act (ErbStG), every acquisition subject to inheritance or gift tax must be notified in writing to the competent tax office by the acquirer – and, in the case of gifts, also by the donor – within three months of becoming aware of it. Section 30 (3) ErbStG provides exceptions to this duty, in particular for acquisitions based on a disposition mortis causa opened by a German court, notary or consul, provided the relationship between the acquirer and the deceased is beyond doubt from that disposition and the acquisition does not include certain categories of assets such as real property, business assets or foreign assets, and also for gifts inter vivos recorded by a court or a notary. The actual inheritance or gift tax return under Section 31 ErbStG is something different. It is typically requested only later, once the tax office considers the matter to need clarification. The criminal law risk can therefore arise long before the first formal return.
Anyone who relies on the idea that nothing needs to be done below a tax-free allowance underestimates practice. Whether an acquisition really remains without consequences rarely depends only on a rough back-of-the-envelope calculation. Prior gifts within ten years, the correct tax class, valuation questions concerning real estate or company shares, and foreign assets often shift the picture considerably. The most dangerous sentence is therefore not “no tax is due” but “I think no tax is due”.
An example from practice illustrates this. A father transfers a plot of land to his son by notarised contract. According to a first estimate, its value is below the tax-free allowance of €400,000. Nobody thinks of the condominium the father had transferred to the son five years earlier. If both transfers are aggregated under Section 14 ErbStG, the allowance is exceeded. The earlier gift therefore remains relevant for the taxation of the later acquisition and must be correctly taken into account in a tax return requested by the tax office. The notarial recording, by contrast, can make the acquirer’s own notification of the acquisition unnecessary.
The notarised contract is no carte blanche
A widespread misunderstanding runs like this. Because the notary reported the contract to the tax office, everything has been taken care of. In fact, the notary reports only the notarised transaction and not the entire tax reality. Gifts inter vivos recorded by a court or a notary are exempt from the acquirer’s own notification under Section 30 (3) sentence 2 ErbStG. The special counter-exceptions for certain categories of assets such as real property, business assets or foreign assets, on the other hand, concern the acquisitions based on opened dispositions mortis causa governed by sentence 1. And even where the exception applies, the notary reports only what is in the deed.
The problem begins with the fact that the tax relevance is often not fully contained in the deed itself. In the case of mixed gifts, indirect gifts, shifts in value effected through corporate structures or hidden transfers between spouses, the tax-relevant substance is frequently not on the first page of the contract. In its judgment of 8 March 2017 – II R 2/15, the Federal Fiscal Court (BFH) clarified that mere indications which merely give cause for further enquiries do not yet establish positive knowledge on the part of the tax office of the completed gift. In the case of indirect gifts, the authority must rather know all the circumstances that make up the gift in the first place.
It is equally unhelpful if the authority knows only a fragment. In its judgment of 26 July 2017 – II R 21/16, the BFH held that knowledge of only part of a gift made at the same time does not start the assessment limitation period for the remaining assets. What matters in principle is the knowledge of the organisationally competent inheritance and gift tax unit (BFH, judgment of 5 February 2003 – II R 22/01). However, a communication expressly submitted for the purpose of examining gift tax liability may suffice if it fails to reach the competent unit without delay only because of internal organisational errors.
Here too, an example. Parents transfer a plot of land to a child and, in the same notarial act, bank balances as well. The tax office receives only a communication about the acquisition of the land. It initially learns nothing of the additional transfer of the bank balances. Under the BFH judgment of 26 July 2017, knowledge of the acquisition of the land does not start the assessment limitation period for the gift tax on the bank balances.
For practice, this means that the exemption from the acquirer’s own notification replaces neither the correct tax classification nor complete information in a tax return requested by the tax office. Anyone who, for instance, understates the gratuitous portion when transferring a plot of land, conceals the shift in value in a corporate arrangement or considers earlier gifts “not worth mentioning” cannot later retreat to the position that the notary did his duty after all. The notary does not report your memory and does not report your history.
Prior gifts – the real minefield
Prior gifts are the real minefield of gift tax proceedings. Almost every family remembers the big transfer. Hardly anyone reliably remembers the many smaller ones, such as the money given as a loan and never called in, the assumption of a private liability, the securities account transferred in several tranches, the condominium subject to a usufruct or the half of a house paid for but registered only in the child’s name.
The case law is particularly sharp here. The principle of Section 14 ErbStG is that several benefits accruing from the same person within ten years are aggregated. In its decision of 10 February 2015 – 1 StR 405/14 (BGHSt 60, 188), the Federal Court of Justice (BGH) held that the statement in a gift tax return that there were no prior gifts is an incorrect statement about tax-relevant facts within the meaning of Section 370 (1) no. 1 of the German Fiscal Code (AO), and this in two respects, namely for the tax-free allowance and the tax rate of the current gift, but also for the taxation of the earlier acquisitions themselves. Insofar as the same prior gift is concerned, the later false statement can recede as a subsequent act absorbed into the punishment for an earlier omission offence that can still be prosecuted. If the earlier offence can no longer be prosecuted, that privilege falls away. A new evasion still requires that the tax can still be assessed.
The second side of this decision is particularly important for the defence. The BGH does not in principle consider it unreasonable to expect such prior gifts to be disclosed. The privilege against self-incrimination (nemo tenetur) generally does not carry further at this point. The BGH first refers to the possibility of an effective voluntary self-disclosure, so that no irresolvable conflict arises within the meaning of the prohibition on coercive measures in Section 393 (1) AO. If self-disclosure is barred, it recognises a criminal law prohibition on the use of compelled statements that lead to indirect self-incrimination. This does not amount to a general prohibition on using tax information in criminal tax proceedings.
Here too, an example. In 2025 a mother gives her daughter a plot of land. In the gift tax return, the daughter ticks “no” in answer to the question about prior gifts. In fact, in 2019 the mother had transferred to her a securities account worth €120,000 which had not been notified at the time. If the deliberately false statement, taking both acquisitions into account, leads to the tax being assessed too low, this can constitute a completed tax evasion under Section 370 (1) no. 1 AO. Whether the earlier transfer was already relevant under criminal law is a separate question to be examined.
This is often underestimated in practice. Many people affected believe that the real risk lies in the failure to make the first notification. Frequently, however, the case only explodes years later, when a return is filed in response to a new gift or to the death of the donor and the simple line on prior gifts is filled in incorrectly. An old gap then turns into a new and very concrete criminal file.
Conversely, a clean line must be drawn. Not everything that has ever flowed between the same persons belongs in the same return. In the same decision, the BGH clarified that subsequent gifts, meaning later transfers made after the acquisition to be declared, do not have to be written into that return. The acquirer’s own duties to notify or to file returns for the later transfers remain unaffected. It is precisely such nuances that show how half-informed spontaneous statements can be more dangerous than an orderly approach.
After the death – when the real legacy problems surface
After a death there is frequently a second, often overlooked phase. When the documents are sifted, things suddenly surface that are only indirectly connected with the current inheritance but are highly explosive in tax terms. The father’s old Swiss account. The Liechtenstein foundation that was “only ever spoken about in hints”. The safe deposit box with cash and gold. The life insurance policy that did not appear in the first estate inventory. Or earlier gifts that the deceased himself never notified.
The decisive practical distinction is often overlooked. The original tax evasion of the deceased is not automatically that of the heir. But if the heir continues to remain silent after gaining certain knowledge, a new accusation of his own by omission arises easily. In its judgment of 11 September 2007 – 5 StR 213/07, the BGH made clear that an heir may be subject to a duty to correct if he realises that an inheritance tax return already filed is incorrect, even if that return was initially filed by the executor.
An example from practice illustrates this. A son inherits after his father’s death. Going through the papers, he finds bank statements of an undeclared foreign account with a balance of €300,000. His first thought is “That was my father’s problem.” In fact, his own responsibility begins at the moment he knows of the tax relevance of this account. If he thereby realises, before the assessment limitation period has expired, that an inheritance tax return filed by him or on his behalf is incomplete and that a tax shortfall has arisen or may arise as a result, he must notify and correct this without undue delay under Section 153 AO. As universal successor, this duty to correct also extends to tax returns of his father whose incorrectness he recognises, for instance where the income from the account was never declared. If no return has yet been filed for the inheritance, the first questions are the notification of the acquisition under Section 30 ErbStG and an inheritance tax return requested by the tax office under Section 31 ErbStG, in which the account must be fully disclosed. Anyone who then remains silent risks criminal liability of his own for tax evasion by omission.
For the criminal proceedings, a further practical point comes into play. The state may not simply assert the value of the estate approximately. In its decision of 21 March 2017 – 1 StR 602/16, which concerned the evasion of inheritance tax on a compulsory portion claim that had been asserted, the BGH held that a conviction for attempted evasion of inheritance tax requires consistent and sustainable findings on the existence and value of the taxable acquisition at the relevant point in time and on the bases of taxation. Anyone who keeps estate inventories with gaps, adopts estimates that nobody can explain any more, or “tidies up” the asset position only years later makes work harder not only for the tax office but also for his own defence.
Anyone who talks in an unstructured way in such a situation makes the case worse. Anyone who does nothing at all usually makes it worse still. You will find more on these interfaces in our article on voluntary self-disclosure to avoid penalty.
Not every failure is intent
In criminal law, much is decided on the subjective side. Intent is not established simply because, in the end, a notification was missing. Particularly in succession matters, there are situations in which awareness of the tax problem is genuinely absent. This applies not only to lay people but not infrequently also to well-advised business families when civil law, company law and tax law drift apart in time.
In its judgment of 9 April 2025 – II R 39/21, the BFH once again emphasised that the ten-year assessment limitation period for tax evasion requires specific findings not only on the objective elements of the offence but also on the subjective element, namely intent. In the case decided, the BFH set aside an interlocutory judgment because the necessary findings on the basis and amount of the tax claims and on the elements of tax evasion were missing. Sweeping suspicions are not enough. Tax offices may not affirm the longer period prematurely without both the tax shortfall and intent having been examined in the individual case.
How easily tax consequences slip out of view is shown by an example from a neighbouring income tax context. Shares in a limited liability company (GmbH) are transferred to a child at an early stage while the parents retain a usufruct. The family thinks of provision, liability and control under company law and not of the fact that, years later, a permanent move abroad by the shareholder, by then an adult, can trigger follow-on tax problems up to and including exit taxation under Section 6 of the German Foreign Tax Act (AStG). Whether intent to evade exists in such a situation is decided not solely by whether someone knew of a duty to notify or to file, but by whether those involved at least considered the tax claim and a possible shortfall to be possible and accepted that risk.
This is no carte blanche. Especially in arrangements prepared over the long term and with professional support, ignorance is scrutinised strictly. But the practical truth is also that not every carelessness typical of families amounts to criminal energy. The position is similar with joint spousal accounts, family pools or apparently “neutral” restructurings among shareholders. Anyone who thinks only in civil law terms easily overlooks the fact that gift tax law reaches even where nobody uses the word “gift”.
The Güterstandsschaukel – elegant within the family, risky under criminal tax law
The Güterstandsschaukel, the switching of the matrimonial property regime back and forth, looks at first sight like an instrument of family law. Spouses switch from the community of accrued gains to the separation of property, the accrued gains are equalised, and then the couple returns to the community of accrued gains. Under the conditions of Section 5 (2) ErbStG, the equalisation claim arising under matrimonial property law in this process does not form part of the taxable acquisition. In its judgment of 12 July 2005 – II R 29/02, the BFH recognised this arrangement in principle for tax purposes.
In criminal proceedings, however, the history suddenly becomes interesting. Were earlier transfers between the spouses correctly notified? Does the swing actually cover the accrued gains determined under civil law, or is an “equalisation” being constructed which in truth conceals a gratuitous enrichment? In proceedings concerning interest on evaded tax, the Hessian Fiscal Court held in its judgment of 7 May 2018 – 10 K 477/17 that the retroactive lapse of gift tax under Section 29 (1) no. 3 ErbStG does not eliminate the offence of tax evasion that has already been committed and does not stand in the way of assessing interest on evaded tax.
Anyone considering this arrangement should therefore think about the criminal law side from the outset. More on this in our German-language article Güterstandsschaukel als Steuerhinterziehung strafbar?
Limitation periods – two clocks that are constantly confused
Our article on limitation periods in criminal law and tax law explains the different time limits and the events that can affect their expiry.
Hardly any topic is misjudged as often as limitation. Conceptually, two clocks are already running. The tax law limitation period for assessment decides how long the tax office may still assess tax. The criminal law limitation period for prosecution decides how long tax evasion can still be investigated and charged. The two do not automatically coincide.
Limitation period for tax assessment
The regular assessment period of four years is only the beginning. In the case of grossly negligent understatement of tax it is extended to five years, and in the case of tax evasion it is extended under Section 169 (2) sentence 2 AO to ten years. According to the BFH judgment of 9 April 2025 – II R 39/21, this ten-year extension for tax evasion requires that all objective and subjective elements of Section 370 AO be specifically established. Neither a mere initial suspicion nor an incomplete estate inventory is sufficient simply to assume ten years.
In addition, there is a special feature of the deferred commencement of the limitation period. For inheritances, the assessment period under Section 170 (5) no. 1 AO does not begin before the end of the year in which the acquirer became aware of the acquisition. In its judgment of 4 June 2025 – II R 28/22, the BFH clarified that what matters is the legally valid acquisition, meaning knowledge of the specific legal basis, such as a will or the statutory rules of succession, on which the acquisition rests. Where a will found later is contested by another claimant to the inheritance, certain knowledge is in principle tied to the decision of the probate court. Whether that decision has become final is irrelevant.
An example illustrates this. A father dies in 1988. The children assume intestate succession. Fifteen years later, a will surfaces that appoints one of the children as sole heir. Another child contests the validity of the will. In 2007 the probate court decides in favour of the sole heir named in the will. Under the principles developed by the BFH in its judgment of 4 June 2025 – II R 28/22, the decision of the probate court can then convey the certain knowledge. For the start of the limitation period, the end of that calendar year is decisive.
For gifts that were not notified, the situation is even more serious. Under Section 170 (5) no. 2 AO, the assessment period for gift tax does not begin before the end of the year in which the donor died or the tax office obtained positive knowledge of the completed gift, whichever of these two events occurs first. If a gift is neither notified nor otherwise becomes known to the tax office and the donor is still alive, the period in practice does not begin to run at all. In combination with the ten-year assessment period extended in cases of tax evasion, this results in periods of several decades.
Limitation period for criminal prosecution
Under criminal law, simple tax evasion becomes time-barred after five years (Section 78 (3) no. 4 of the German Criminal Code, StGB). In the statutorily named cases of particularly serious tax evasion under Section 370 (3) sentence 2 nos. 1 to 6 AO, the most important standard example being a shortfall on a large scale with an evaded amount above €50,000, the period is today 15 years (Section 376 (1) AO). This extension applies to all offences that were not yet time-barred on 29 December 2020. For older cases, the periods applicable at the time and any interruptions must therefore be examined. According to the BGH’s leading decision of 25 July 2011 – 1 StR 631/10 (BGHSt 56, 298), the point of termination decisive for the start of the limitation period lies, in the case of a gift that was not notified in breach of duty, four months after becoming aware of the acquisition. The BGH adds together the three-month notification period of Section 30 (1) ErbStG and a possible one-month period for filing a tax return with self-assessment under Section 31 (1) and (7) ErbStG, because the tax office would have assessed the tax at the earliest at that point had the notification been made in time. Anyone who therefore believes that a never-notified old transfer from the nineties is completely time-barred is often wrong. Even if prosecution of the earlier offence is time-barred, the tax may still be assessed because the start of the assessment period was deferred. Whether a later incorrect return constitutes a further tax evasion offence must be examined separately in light of the elements of the offence and its relationship to the earlier offence.
Voluntary self-disclosure – possible, but only if complete and in time
Voluntary self-disclosure to avoid penalty under Section 371 AO is possible in inheritance and gift tax law, but it often fails at the very point where the problems arose, namely incompleteness. Anyone who reports only the foreign securities account he believes has been discovered, but leaves out the earlier gift of land, the older cash transfer or the overlooked prior gift, has usually not thrown out a lifeline but has merely handed the tax office the entry point into the whole case.
Completeness in this type of tax almost always means historical work. Under Section 371 (1) AO, the information must cover all tax offences of the same type of tax that are not yet time-barred, and at least all tax offences of that type of tax within the last ten calendar years. For gift tax, this covers not only the earlier transfers from the same donor, which are in any event aggregated under Section 14 ErbStG, but also acquisitions from other persons. Aggregation under Section 14 ErbStG and completeness under Section 371 AO are two different tests. On this basis, the tax office must be able to assess the tax without lengthy investigations of its own. Half-hearted “preliminary notices” are dangerous. Where more than €25,000 in tax has been evaded per offence, exemption from punishment under Section 371 AO is excluded. Under the further conditions of Section 398a AO, prosecution can be waived. For this, the evaded taxes and the relevant interest, together with a monetary payment of 10, 15 or 20 percent of the evaded tax, must also be paid within the period set.
Timing is just as decisive. Self-disclosure is barred, among other things, if the offence had already been discovered in whole or in part and the offender knew this or, on a reasonable assessment of the situation, had to expect it. Control notices, estate documents or bank information held by the tax office can be sufficient for this. Separate grounds for exclusion, to be distinguished from this, include the notification of an audit order, the appearance of an auditor or the notification that criminal or administrative fine proceedings have been initiated. Anyone in this situation should therefore not improvise. You will find further basics in our article on voluntary self-disclosure to avoid penalty.
Internationally, the automatic exchange of financial account information under the Common Reporting Standard makes it considerably harder to keep foreign assets permanently hidden from the tax authorities. Anyone who still relies on discreet foreign accounts today seriously underestimates the technical reach of the tax authorities.
Conclusion
The typical problems in the evasion of inheritance and gift tax are in truth nothing exotic. They are called incomplete notification, overestimated allowances, underestimated prior gifts, misplaced trust in the notary or the probate court, late discovery of legacy problems and an imprecise handling of limitation and self-disclosure.
Anyone who creates clarity early in such a situation often still has real room for manoeuvre. Anyone who waits first loses order in tax matters and then, frequently, control in criminal matters.
You will find further information here on attorney Dr. Tobias Rudolph, on criminal tax law and on voluntary self-disclosure to avoid penalty.