Tax Evasion and Criminal Tax Law – Lawyer Frankfurt

Tax Evasion and Criminal Tax Law in Germany (§ 370 AO)

Criminal tax law in Germany is a classic “blanket” offence structure. Sections 369 et seq. of the Fiscal Code (AO) regulate criminal consequences but refer to general criminal law (§ 369 (2) AO) and specific tax laws for interpretation. The core provision is Section 370 AO – tax evasion, which closely interlocks with substantive tax law.

What Is Tax Evasion? (§ 370 (1) Nos. 1–2 AO)

Under § 370 (1) AO, tax evasion occurs when a person:

• • Provides false or incomplete information about tax-relevant facts to tax authorities, or
• • Fails to disclose tax-relevant facts that should be reported.

Important: There can be cases where a fiscal audit finds a higher tax result but no provable criminal reduction (in dubio pro reo). Conversely, even if no tax increase is assessed, a criminal tax reduction may exist – due to the prohibition of compensation (§ 370 (4) sentence 3 AO).

Who Investigates in Tax Crime Cases?

Investigations are usually led by the tax authorities, exercising the rights and duties of the public prosecutor (§ 386 (1) AO).

• • Competence: The tax office responsible for the tax concerned (§ 387 (1) AO).
• • Local jurisdiction: governed by § 388 AO.
• • Tax Investigation Department: acts as enforcement organ but without independent prosecutorial powers.

Specialised Tax Crime and Fines Units (BuStra) exist in many federal states; in Lower Saxony and North Rhine-Westphalia, special tax investigation offices operate with prosecutorial powers.

Special Jurisdictional Situations

• • If the case involves non-tax crimes (§ 386 (2) AO) or arrest orders (§ 386 (3) AO), the public prosecutor is competent.
• • The prosecutor can assume the case at any time (§ 386 (4) sentence 2 AO).
• • The tax authority may also refer or return the case by agreement (§ 386 (4) AO).

Common Forms of Tax Evasion

VAT Evasion (including Carousel Fraud)

VAT evasion affects both companies and consumers. Typical methods include:

• • Failure or false filing of VAT returns (underreporting turnover, false input tax claims)
• • False invoicing (fake invoices, incorrect amounts)
• • Failure to register taxable transactions

Common patterns:

• • Sham transactions
• • VAT carousel fraud with circulating intra-EU supply chains
• • Abuse of input tax deduction through forged or invalid invoices

Illegal Employment (Construction, Security, Cleaning)

Often organised via “service companies” using chain transactions and sham invoicing – effectively a business model of tax evasion. Typical additional offences: evasion of wage tax, social contributions (§ 266a StGB), and subsidy fraud (e.g. SOKA-Bau). Damages often reach tens of millions of euros.

Hidden Profit Distributions (vGA)

Hidden profit distributions (§ 8 (3) sentence 2 KStG) are benefits caused by the shareholder relationship, without formal dividend declaration. Effects:

• • For corporations: increases taxable income – omission may constitute evasion.
• • For shareholders: generates personal income (capital gains) at the time of inflow.
• • Often implemented via fake invoices and kickbacks – leading to parallel corporate and personal tax evasion.

Penalties under Criminal Tax Law

• • Standard maximum penalty: up to 5 years imprisonment or fine.
• • Serious cases (§ 370 (3) AO), smuggling (§ 373 AO), organised or commercial tax offences (§ 374 (2) AO): up to 10 years imprisonment.
• • The Federal Court (BGH, 2012) ruled: prison sentences for multi-million cases are usually not suspended unless significant mitigating factors exist.

Limitation Periods

Criminal Limitation

• • Standard: 5 years (§ 78 (3) no. 1 StGB)
• • Serious cases: 15 years (extension due to Cum-Ex and similar cases)
• • Start: when the act of evasion is completed

Tax Limitation (Assessment Period)

• • Normally 4 years from the end of the calendar year
• • 10 years in cases of tax evasion (§ 169 (2) no. 2 AO)

Suspension or interruption may occur, e.g. during audits, the start of investigations, or judicial actions – restarting limitation periods.

FAQ: Criminal Tax Law & Tax Evasion (§ 370 AO)

Why is criminal tax law called a “blanket law”?

Because the Fiscal Code refers to general criminal law and individual tax acts (§ 369 (2) AO); it is “filled in” by these norms.

When does tax evasion occur?

When false or incomplete information is given, or tax-relevant facts are concealed (§ 370 (1) AO). Assessment follows criminal, not fiscal, principles.

What is the prohibition of compensation?

Even without a fiscal increase, criminal tax reduction can exist – tax losses cannot be offset (§ 370 (4) sentence 3 AO).

Who investigates – tax office or prosecutor?

Usually the tax authority (BuStra or tax investigation unit) with prosecutor-like powers (§ 386 (1) AO). The public prosecutor may assume control at any time (§ 386 (4) AO).

What defines VAT carousel fraud?

Multi-level supply chains creating fictitious VAT refunds through fake intra-EU trade – a classic pattern of VAT evasion.

Why are fake invoices in construction or service sectors risky?

They often combine VAT, income, corporate and wage tax evasion – and social contribution fraud. Losses easily reach multi-million sums.

What is a hidden profit distribution (vGA)?

A shareholder-related benefit without formal dividend; increases corporate tax base and triggers shareholder income tax if not declared.

What penalties apply?

Depending on severity: fine or imprisonment; up to 10 years for serious cases. Suspended sentences are rare above €1 million evasion.

How long is prosecution possible?

Criminal limitation usually 5 years, 15 in serious cases; tax limitation 4 years, 10 for evasion, subject to interruptions and suspensions.

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Contact our Criminal Tax Lawyers in Frankfurt

Contact us – your English-speaking criminal tax defence lawyers in Frankfurt and throughout Germany:

• • Frank M. Peter, Lawyer, Specialist in Criminal Law
• • Dr. Caroline Jacob, Lawyer, Specialist in Criminal Law
• • Of Counsel: Prof. Dr. Frank Peter Schuster
• • Cooperation Partner: Tax Consultant and Former Tax Investigator Frank Wehrheim

Buchert Jacob Peter has been based in Frankfurt am Main for over 25 years, providing expert defence in tax and white-collar crime cases throughout Germany.

Phone: +49 69 710 33 330
Email: kanzlei@dr-buchert.de

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