In criminal law for tax offences, general fiscal law is superimposed by the particularities of criminal proceedings.
The defendant in fiscal law proceedings is, on the one hand, confronted with the charge of having committed a crime. This leads to him, for example, fundamentally having the right to remain silent. On the other hand, he is obliged to continue to declare his taxes correctly and to pay them. The constellation of tension between the position as defendant in criminal proceedings and the position as a citizen obliged to pay taxes often leads to very special problems, which cannot be solved by knowledge of fiscal law or criminal law alone.
A further difficulty of criminal law for tax offences is that there are only very few legal regulations. The central standards of General Fiscal Law, i.e. the code of procedure of fiscal law refer to the standards of the code of criminal procedure in a complicated interaction.
Even experienced defence lawyers often struggle with criminal law for tax offences because an appropriate processing of founded knowledge is required. In contrast, tax advisers who have excellent training in fiscal law, frequently have difficulties dealing with the procedural and contentual particularities of criminal proceedings. Furthermore, the tax advisers who submitted an objectively wrong tax declaration for their clients, have good reasons not to continue to represent this client if it comes to the filing for criminal proceedings.
The defence lawyer specializing in tax law must be equally knowledgeable of criminal law and fiscal law. Apart from this special qualification, which, for example, can be recognized by the title of lawyer specializing in criminal law and fiscal law, the main requirement of a fiscal defence lawyer is his independence. A lawyer worrying about having to “save his own skin” will hardly bring up the courage and resolution to confront the investigative authorities, in order to represent the client’s interests.
The area of conflict between fiscal law and criminal law is a minefield and involves significant risks even for advisers. The fact that these risks are not only of a theoretical nature is shown, among others, by the fact that preliminary criminal proceedings are initiated against tax advisers (lawyers/tax advisers) again and again, in which they are charged with not having fulfilled the fiscal obligations they were contracted to fulfil on behalf of their clients. Whereas criminal proceedings are usually dealt with by the public prosecutor’s office and the police, one is confronted with several points of contact with completely different functions when it comes to criminal law for tax offences.
It is not uncommon for criminal proceedings for tax offences against businessmen to start during a tax audit. According to § 10 of the Company Audit Act, an auditor is obliged to discontinue the company audit on suspicion of a fiscal criminal crime and to pass on the facts of the case to the tax fraud investigators. The background behind this regulation, which is unfortunately not always observed in practice, is that the defendant is entitled to certain rights as of this point in time – above all, the right to remain silent. An auditor expressing the suspicion of a tax offence is thus usually not ill-disposed, but merely fulfilling his duty by law. The notification of fiscal criminal proceedings enables the person concerned to involve a qualified lawyer and to work out his own strategy.
The self-image of tax investigators and company auditors has changed significantly within the past few years. Due to the attention and support from the public, which the civil servants have been experiencing in the media, they have become more self-confident. At the same time, auditors and investigators are being better trained to recognize typical signs of tax evasion (not uncommonly in combination with corruption).
Consultant fees for example are being audited more carefully. It is not uncommon for there to be the suspicion that hidden bribery payments are involved, which according to § 4 Section 1 No. 10 Federal Income Tax Act is not tax-deductible.
A trained tax auditor will also pay particular attention to items within the scope of leasing and renting that reveal a loss in the tax declaration due to high amortization. As long as these items are used privately or by closely related persons in reality, the suspicion arises that a rental agreement has been concluded with third parties in pretence only.
In the case of tradesmen, frequent triggers for penal proceedings for tax fraud are cash payments (pizza baker, doner kebab restaurants or Chinese takeaways) or private cash flows from abroad which cannot be completely proven.
A further typical trigger for tax investigations married couples living apart who are mutually assessed (§ 26 Federal Income Tax Act). It is not uncommon for such to state living in a mutual apartment although in reality, the wedded cohabitation no longer exists. In these cases, this can represent tax evasion if the tax office is not informed about the married couple permanently living apart in reality.
If penal proceedings for tax crimes are not initiated in the scope of a company audit, this frequently happens by the tax investigation. The responsibilities of the tax investigation are regulated in § 208 German Fiscal Code and are as follows:
The investigation of tax offences and tax misdemeanours,
The determination of tax bases in the cases named in number 1,
The discovery and investigation of unknown tax cases.
In practice, two typical constellations can be described as to why tax investigations initiate penal proceedings:
On the one hand, there are tips from the outside every now and again. The “classic one” is the not so uncommon anonymous tip such as from an ex-wife or ex-lover during an argument when separating. As soon as the tax investigators have received such a tip, they will follow up the suspicion with all available means. In doing so, the means of investigation range from internal comparisons over account checks at banks, questioning neighbours, employers and social insurance agencies to searching the suspect’s house.
If the signs of tax evasion are substantiated, the authorities for penalties and criminal cases (abbreviated to BuStrA in Bavaria, also called StraBu in other Federal states).
Yet, it happens time and again that tax investigators systematically comb through certain professional or social groups. In the recent past, in this context, there have been for example penal proceedings for tax crimes initiated against foreign IT specialists.
At present, even scrap merchants, prostitutes and taxi drivers among other are typical target groups of comprehensive tax investigations.
Tax investigations are also to be expected in relation to an increased emergence of corruption or fraud investigations into doctors, chemists and manufacturers of pharmaceuticals.
In the case of such comprehensive investigations, tax defence lawyers face the challenge of recognizing whether it is a one-off case or whether a “new wave” of penal proceedings for tax crimes is in the offing. If this is the case, it is usually not sufficient for the defence to restrict it to a one-off case. The investigators are increasingly networked with each other and exchange knowledge across Germany – sometimes even internationally. Then, systematic and multidisciplinary back ground knowledge is also to be expected of defence lawyers specializing in tax offences.