GERMAN CRIMINAL TAX FRAUD LAW FROM AN AMERICAN PERSPECTIVE, INCLUDING CRIMINAL EVASION OF GERMAN INHERITANCE (ESTATE) TAX
Dr. Peter K.-D. Barandt
Attorney at Law (New York)
An den Pappeln 14
60388 Frankfurt / Germany
Phone (from U.S.)
011 49 6109 33081
Fax (from U.S.)
011 49 6109 31552
Intentional Tax Fraud will be prosecuted as a felony (“Verbrechen”) or a misdemeanor (“Vergehen”), grossly negligent Criminal Tax Evasion will be prosecuted as an infraction (“Ordnungswidrigkeit”).
In case of the German Federal Inheritance (Estate) Tax (“Erbschaftsteuer”, “Erbschaftssteuer”) the relevant deadline for a beneficiary to declare is twofold.
In a first step, the beneficiary must notify the German Inheritance Tax Office of (“Erbschaftsteuer-Finanzamt”) about the death of Decedent and the nature and extent of the bequest made by the Decedent to him or her within three months from the time of his or her knowledge of Decedent’s death.
Thereafter, the German Inheritance Tax Office (to be distinguished from the German C.I.D.) will determine an individual deadline for the filing of the German Inheritance (Estate) Tax return, which the latter may extend upon request.
Once any of the two aforementioned deadlines will be missed without excuse, probable cause for criminal tax fraud may be assumed.
Punishment for intentional Tax Fraud will be a fine or imprisonment of up to five years, in severe cases imprisonment of up ten years.
Imprisonment sentences up to two years can be and usually are on probation.
In practice, the criminal investigation will be conducted by the Criminal Investigation Division (C.I.D.) (“Steuerfahndung”) of the German Internal Revenue Service (I.R.S.)
For the German equivalent of a U.S. grandjury inditement and for a possible subsequent trial the C.I.D. of the I.R.S. will have to hand over the case to the District Attorney’s Office (D.A.) (“Staatsanwaltschaft”).
The instruments preferably used by the C.I.D. (“Steuerfahndung”) to effectively exert pressure on taxpayers to produce a confession of having committed Tax Fraud are Search and Seizure Orders and Arrest Warrants.
Pre-Trial Detention (“Untersuchungshaft”) can be up to six months initially and can be extended several times.
Release from Pretrial Detention (“Untersuchungshaft”) will be possible under a bail, i.e. a bond.
The German C.I.D. (“Steuerfahndung”) and the German D.A. (“Staatsanwaltschaft”) must seek the entering of Search and Seizure Orders (“Durchsuchungsbeschluss”, “Beschlagnahmebeschluss”, “Durchsuchungs- und Beschlagnahmebeschluss”) and of Arrest Warrants (“Haftbefehle”) before the German Criminal Courts, i.e. before the Federal Courts at their lowest level of the Municipal Courts (“Amtsgerichte”).
In lieu of a U.S. grand jury inditement the German D.A.’s Office will have to present its case directly to the German Criminal Court Judge for the opening of a criminal trial.
In practice, there will be limited control exercised over the German C.I.D. (“Steuerfahndung”) only by the German courts since both civil law, i.e. substantive civil tax law (“Steuerrecht”) and procedural civil tax law (“Steuerverfahrensrecht”), on one hand and criminal law (“Strafrecht”) and criminal procedure law (“Strafverfahrensrecht”) are overlapping here and since both the Investigating Judge having the power to vacate measures of the C.I.D. and ordinary German attorneys defending a taxpayer typically have only little professional legal education and expertise in German Tax Law.
On the other hand, a German Certified Public Accountant (“C.P.A.”) typically will have virtually no education and expertise in German Criminal Procedure Law (“Strafverfahrensrecht”) governing the criminal investigation proceedings.
Criminal prosecution by the German C.I.D. (“Steuerfahndung”) or the German D.A. (“Staatsanwaltschaft”) will typically be accompanied by parallel civil measures by the German Government against the taxpayer, such as the simultaneous impounding of a general lien on a taxpayer’s German assets with the ensuing garnishment of all of his or her bank accounts and with the attachment of major parts of the taxpayer’s personal property together with the encumbering of his or her real property with preliminary mortgages in favor of the German Government.
Such civil tax law measures undertaken by the German Government must be vacated and appealed by the taxpayer separately before the German Tax Courts (“Finanzgerichte”).
All courts, i.e. both German Criminal Courts (“Strafgerichte”) and Tax Courts (“Finanzgerichte”), are Federal Courts.
All German Criminal Tax Fraud Law (“Steuerstrafrecht”) and Civil Tax Law (“Steuerrecht”) is Federal also.
One of the most promising approaches chosen by a German Criminal Defense Attorney against his adversarial counterpart, i.e. against the German C.I.D. (“Steuerfahndung”) or D.A. (“Staatsanwaltschaft”), will be the separate questioning and quelling the German Government’s alleged tax claim per se before the German Tax Courts (“Finanzgerichte”) holding local jurisdiction over the taxpayer.
The German Tax Court will decide by a three judge panel in a much fairer and more diligent way than the taxpayer can expect from the single judge deciding in the German criminal court system who sometimes cannot withstand adapting the “hunting instinct” frequently controling the actions of the German C.I.D. (“Steuerfahndung”) and the German D.A. (“Staatsanwaltschaft”).
Accordingly, the German Tax Courts are allocated at a much higher level than the German Criminal Courts holding jurisdiction over Tax Fraud cases.
For instance, in the German State of Hesse (“Hessen”) holding local jurisdiction for Frankfurt there are some 58 different local criminal courts (“Amtsgerichte”) as opposed to just one single German Tax Court (“Finanzgericht”) holding local jurisdiction on a statewide basis for the entire State of Hesse (“Hessen”).
Attorneys or C.P.A.s may be accused by the C.I.D. (“Steuerfahndung”) of having colluded with the accused taxpayer thereby disqualifying them from further defending their clients.
Also in a German criminal prosecution and investigation proceeding (“Steuerstrafverfahren”) for alleged Criminal Tax Fraud (“Steuerhinterziehung”), as in any other German criminal prosecution and investigation proceeding (“Strafverfahren”, “Ermittlungsverfahren”) a defendant must not have more than three defense attorneys.
The German Inheritance (Estate) Tax return (“Erbschaftsteuererklärung”) is a sole Federal tax return since State Inheritance (Estate) Taxes are unknown in Germany.
Unlike the U.S. Form 706 Federal Estate Tax return and unlike the New York State Estate Tax the German Inheritance (Estate) Tax return (“Erbschaftsteuererklärung”) will not automatically become due nine months after death.
Instead, the German Inheritance Tax Office (“Erbschaftsteuer-Finanzamt”) (to be distinguished from the German C.I.D. (“Steuerfahndung”)) will set an individual deadline for the filing of the German Inheritance (Estate) Tax return (“Erbschaftsteuererklärung”) in each case, after the expiration of which probable cause for criminal tax fraud (“Steuerhinterziehung”) might be assumed by the German C.I.D. (“Steuerfahndung”) and the German D.A. (“Staatsanwaltschaft”) unless the German Inheritance Tax Office (“Erbschaftsteuer-Finanzamt”) will have granted an extension of such deadline (“Fristverlängerung”) prior to its expiration.
For annually due German Federal taxes such as the German Federal Income Tax and the German Federal Corporate Tax the general filing deadline corresponding to the U.S. general filing deadline of April 15 of the following year is May 31 of the following year.
Interest penalties levied on criminally evaded tax claims are six percent per annum.
Given a civil Statute of Limitations period for intentional Criminal Tax Fraud (“Steuerhinterziehung”) of ten years plus an initial tolling period of up to another three years plus a duration of the criminal investigation proceeding (“Ermittlungsverfahren”) by the C.I.D. (“Steuerfahndung”) of usually several more years, the German Government’s interest penalty bill in many cases will run up as high as the allegedly criminally evaded tax claim itself or even will exceed it.