“Gang-related fraud” and false advice.

Incomplete voluntary disclosure and the consequences – When tax advisors can be liable under civil and criminal law alongside the tax evader (2)

 

The ongoing discussion about tax evasion and voluntary disclosures in the media and in politics, most recently fuelled by the trial of Uli Hoeneß, also draws attention to the work of tax advisors, not least on the subject of voluntary disclosures. A legal evaluation of this question of “expert liability” is undertaken by RA Dr. Johannes Fiala (Munich) and Dipl.-Math. Peter A. Schramm (Frankfurt am Main) in a small series of articles. Part 1 was published in issue 17/14, also available on dzw.de.

Gang tax fraud and the road to legalisation

A gang consists of at least three members (BGH, decision of 22.03.2001, Az. GSSt 1/00, BGHSt 46, 321 ff.), which the jurisdiction considers to be abstractly and concretely more dangerous, consequently more worthy of punishment.

An example of this is the case where a taxpayer, together with his tax advisor and a defence lawyer, decide to confess only part of the truth when making a voluntary declaration.

It is also a case of a gang if a mediator or arbitrator reaches an agreement with the spouses living in divorce about a property acquired with illicit money in Italy, for example, in such a way that this property will be transferred to a charitable foundation in the future, naturally without prior tax legalisation.

Co-partners or family members can also act as a gang for tax purposes illegally. In this case, each participant can file a voluntary report on his own, but this would trigger investigations against the other members of the gang. In practice, such voluntary declarations must be filed simultaneously, even if several tax offices in different locations are responsible, if exemption from punishment is to be achieved for all parties involved.

 

Self-disclosure in the case of incomplete documents

Anyone who files a voluntary declaration on the basis of incomplete documents (or, for example, their incomplete evaluation in the case of speculative transactions) must, as a precaution, estimate the taxes high enough, and then amend them in the objection procedure. Taxpayers naturally tend to estimate too low, contrary to this good advice, “only for the sake of saving money for the time being”, so that the voluntary declaration as a whole is invalid (BGH, decision 20.05.2010, file no. 1 StR 577/09). The StB must never estimate anything himself.

If the tax office or the tax investigation department proceeds to a tax estimate after a voluntary disclosure, this also affects the consultant in the case of a voluntary disclosure as a breach of duty leading to compensation (OLG Celle, judgement of 11.02.2009, Ref. 3 U 226/08). The StB would then have to prove to his exoneration that the client would not have behaved in accordance with the advice anyway, and had thwarted a complete self-disclosure. The latter also occurs, of course, if, for example, only income tax on capital gains is disclosed – but the original source of wealth, such as beneficial donations or so-called consultancy fees, remains untaxed. Similarly, if it is an untaxed gift or inheritance, and not just “tax neutral” capital gains.

Banks in Switzerland in particular – unlike in Austria – do not have an EDP system with tax analysis for German tax returns. Because as a rule there customers are often only evaders – it lacks the demand for tax directly usable evaluations for the declaration of taxable incomes from capital assets, until today. If you request secondary evidence there, it often takes months – sometimes longer. Fees for a second printout of an account statement at the end of the year can be up to more than CHF 500.

It is not uncommon for the credit institution’s EDP system to fail to provide accurate evaluations. The financial supervisory authorities have been complaining about this in Germany for years. One practitioner then says to colleagues in training that everything is only half as bad: “Remember one thing: it is always the client who goes to jail”.

 

Liability for pecuniary loss

The tax advisor is liable to his client if, for example, a fine is imposed on the client due to carelessness (BGH, judgement of 14.11.1996, ref. IX ZR 215/95; BGH, judgement of 15.04.2010, ref. IX ZR 189/09). Compensable damages would also include compensation for deprivation of liberty, the necessary bail and any resulting loss of property and income, any fines, and for the costs of criminal defence.

Such damages are regularly insured in the StB’s and RA’s pecuniary damage liability. Insurance cover is excluded if the professional acts (conditionally) intentionally or if his conviction for a tax offence also occurs in connection with this. If it is a case of a particularly gross “knowing” professional error, since 19.07.2013 only the partnership company with limited professional liability and the Rechtsanwaltsgesellschaft mbH are legally minimum insured for this within the scope of their coverage. It is up to the tax evader to ensure that the liability coverage of its advisors is adequate.

 

Professional liability insurance

The statutory minimum cover of 250 TEUR for lawyers, StBs and StB-GmbHs will often not be sufficient to insure the typical risk of the client resulting from their activity due to damages and consequential damages.

Average insurance agents are not trained to determine the amount of coverage required. However, according to the so-called “Sachwalterurteil” of the Federal Court of Justice (BGH) (dated 22.05.1985, file no. IV a ZR 190/83), the insurance broker has, among other things, the cardinal obligations to investigate the risk and to inspect the property. If coverage amounts are neither determined nor set by the broker, the broker’s professional liability insurance is also likely to be free of performance.

An “investigation” that is limited to asking the policyholder about the desired sum insured without any related advice is unlikely to meet the requirements for brokerage, just as when the doctor asks the accident victim who has just been admitted:
“Well, how much blood plasma would you like to have for transfusion today?”

The decisive factor is that StB/RA/WP are obliged to insure themselves “adequately”. Thereby you meet insurance brokers, who obliviously and (only conditionally?) intentionally, but ineffectively (BGH, judgement of 20.01.2005 – III ZR 251/04) want to exclude consultation obligations to the height of the insurance cover by form contracts, § 307 BGB. Clients who do not make sure that their “self-disclosure advisor” is also adequately insured are allowing their own heads to end up being played bocce as a wager.

 

Legal error in the deal with the prosecutor

If the taxpayer admits – for example in the context of an understanding with the justice over the punishment which can be expected – an own evasion intention, although he evaded his taxes only negligently, then he cuts himself off thereby the recourse under civil law against his own tax advisor – even if this had not possessed a permission (BGH, judgement of 14.11.1996, Az. IX ZR 215/95). In addition, the penalty range in the case of own negligence of the evader is only up to 50 kEUR, § 378 tax code. Only in the case of negligence is it left to the taxpayer alone to decide when to correct his information.

A good idea to mitigate the penalty according to §§ 46, 46a StGB would be to declare all evaded amounts – including those where the tax claim of the tax authorities is already statute-barred – and to pay promptly also these statute-barred taxes voluntarily. Here, too, it should be noted that advisors are required by duty to fully investigate the facts of the case. Sometimes, however, this is deliberately thwarted by the client according to the salami tactic, so that the consultant only has to have the completeness of the information confirmed anyway.

 

Tax advice from financial advisors and foreigners

In many cases, there is only negligence on the part of the taxpayer when insurance agents, bank advisors and predominantly foreign tax and legal advisors advise wealthier clients of banks and insurance companies as alleged experts or provide expert opinions. The support of domestic clients by foreign advisors (not licensed in Germany), for example by financial plans including tax advice or expert opinions from the “wealth management or private banking” of a bank, is an infringement of the Legal Services Act or the Legal Advice Act (OLG Köln, judgement of 19.12.2003, ref. 6 U 65/03; BGH, judgement of 05.10.2006, ref. I ZR 7/04).

 

Multiple indirect perpetration

If an alleged evader is discovered on a tax CD, an obvious assumption alone is not sufficient to convict him (AG Nürnberg, Az. 46 Ds 513 Js 1382/11). Rather, the taxpayer may also be the object of indirect perpetration by his insurance company or bank if he has been led to believe that his tax exemption is legal to that extent. Typically, financial products from abroad are advertised as being tax-free in the home country.

Here it will be important that the taxpayer simply puts all financial products to the test so that his voluntary disclosure is not incomplete and thus ineffective. From experience, this would only be a partial confession, which would then result in a search of the house and the forfeiture of immunity from prosecution.

 

The overlooked money laundering

A knowledgeable lawyer knows that this is about the concept of “valuation unit”. If someone evades taxes in the amount of more than 50 TEUR, money laundering comes into question if he wants to use this money again in the legal economic cycle, § 261 StGB. All the tricks offered by foreign banks are of no help here – such as putting the assets in an interest-free current account, paying into a life insurance policy or storing gold in a safe deposit box and sitting out the limitation period for tax evasion year after year.

Bitterly, one must have either economically consumed the black money and all items acquired with it (surrogates, such as mansions, endowments and yachts) or resort to self-disclosure. Before that, the statute of limitations for money laundering hasn’t even started. In the case of evasion of less than 1 million euros, there is thus also the good prospect of a sentence without probation, by way of total punishment, as well as confiscation of the assets that have been laundered – or are still being laundered.

The chances of discovering black money at the latest during subsequent money laundering are good, because the investigating authorities will already pay increased attention to money laundering here because of the search for drugs – and other criminally acquired money including the financing of terrorism – also internationally.

 

Other forgotten tax reductions

Renowned advisors sometimes overlook the fact that it is not just a question of evading income tax and the solidarity surcharge. In addition, there is often the church tax. Even those who have voluntary health insurance must still pay contributions to the GKV on the previously concealed investment income. Not infrequently, the evader is also a compulsory member of a pension chamber and pays contributions according to his income. Or there is a pension insurance obligation as a self-employed person, also with contributions depending on income.

Some – former – wives will also easily recognise the chance to increase the gain and pension equalisation and maintenance payments – possibly also a process fraud due to false statements. If, for example, income-related subsidies are claimed, subsidy fraud may also be involved. With a simple self-disclosure alone at the tax office it will be done rather rarely.

 

Lack of consistent control messages

Germans have an almost erotic relationship with forms, as a president of the Steinbeiß Foundation is said to have once put it. For decades, there have been loopholes due to the need to report one’s income or assets to various places. This opens the door to erroneous messages – whether intentional or erroneous. It is up to the legislature to ensure that all levies are collected equally and fairly.

Otherwise, the tax system will be exposed to the suspicion of no longer being in conformity with the constitution “due to a structural enforcement deficit or unconstitutional incorrect taxation” (cf. BFH, judgment of 24 April 2013, file no. II R 17/10). Freely after the motto: Why should actually the tax honest be the stupid one?

 

by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm

 

by courtesy of

 

www.dzw-online.de (The DentistWeek, Issue 19/14)

 

 

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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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