What is Tax Evasion under § 370 AO?

Tax evasion (Steuerhinterziehung) is the core offence of German tax criminal law. Under § 370 (1) nos. 1–2 AO, a person is liable if they (i) provide false or incomplete information to the tax authorities about tax-relevant facts or (ii) unlawfully omit such information, thereby causing a tax shortfall or an unjustified tax benefit.

Key points for defence and assessment:

• Blanket offence: The AO refers to the German Criminal Code and special tax statutes—interpretation follows criminal-law principles.
• No simple offsetting: The “Kompensationsverbot” (§ 370 (4) sent. 3 AO) limits set-offs; a criminal tax shortfall may exist even if no additional tax is ultimately assessed.
• In dubio pro reo: A tax increase in the audit does not automatically prove a criminal tax loss.

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Who Investigates? Roles, Competence and Procedure (§§ 386–388 AO)

In practice, Fiscal Offence and Fines Units (Bußgeld- und Strafsachenstelle – BuStra) conduct most investigations and exercise powers akin to a public prosecutor (§ 386 (1) AO).

• Subject-matter competence: the tax office competent for the tax at issue (§ 387 (1) AO).
• Local competence: see § 388 AO.
• Tax Investigation (Steuerfahndung): operates as the enforcement arm of BuStra.
• Public Prosecutor: takes over if non-tax crimes are involved or where arrest/commitment is at stake (§ 386 (2)–(4) AO). BuStra can hand over; the prosecutor can “evoke” at any time.
• In court: BuStra frequently appears at the main hearing and coordinates with the prosecutor.

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Special Forms of Tax Evasion (Focus Areas)

VAT Evasion & Carousel Fraud (Umsatzsteuer, including “Missing-Trader” chains)

Typical modes: undeclared outputs, sham invoices, unjustified input VAT, non-filing or false VAT returns. Carousel schemes exploit multi-stage supply chains to siphon input VAT refunds.
Defence angles: transactional tracing, real-goods evidence, input-VAT entitlement, supplier due diligence, and knowledge standards.

Illicit Employment & Sham-Invoice Chains (Construction, Security, Cleaning)

Often organised via “service” intermediaries and paper subcontractors. Besides income/corporate tax and VAT, payroll withholding and social security (sometimes § 266a StGB) are affected. Sums quickly reach eight figures.
Defence: separate legitimate turnover from sham flows; scrutinise workforce status, payroll trails and SOKA-Bau exposure.

Hidden Profit Distributions (verdeckte Gewinnausschüttungen – vGA)

Benefits granted due to the shareholder relationship without an open dividend:

• Company side: increases taxable income if not declared.
• Shareholder side: income from capital assets on receipt (including related parties).
  Defence: corporate purpose, arm’s-length pricing, actual benefit recipient, timing and documentation.

Gaming Machines: “Saldo 1” & “Kurzstreifen”

Cash-intensive operations are audit magnets.

• Saldo 1 = cash-in minus payouts → forms gross takings (basis for income/corporation tax and VAT).
• Kurzstreifen (short printouts) are only booking vouchers (§ 147 AO) and do not replace full data retention (long/“statistics” strips, raw digital data, GoBD-compliant archives).
• If data are missing, the tax authority may estimate (§ 162 AO); some offices treat gaps as indicators of intent.
  Defence: prove complete digital records, reconcile with entertainment tax (Saldo 2), explain anomalies (door openings, refills, seasonality), and contest arbitrary estimates.

Cryptoassets & Income Tax (BFH 14 Feb 2023, IX R 3/22)

Currency tokens (e.g., BTC, ETH, XMR) are assets for § 23 EStG. Sales (including token-to-token swaps) within the one-year period are taxable private disposals; the private key indicates economic ownership (§ 39 AO).
Defence & compliance: maintain full trade logs, wallet evidence, FIFO/LIFO methodology, and cost basis; align with evolving reporting regimes (e.g., DAC8/CARF).

Gross Profit Mark-Ups in Hospitality (Rohgewinnaufschlag)

Courts may estimate bases using the Federal benchmark tables if other methods fail. But: estimates must reflect local specifics (location, concept, periods) and establish at least a proven minimum—fertile ground for defence.

Withholding & Embezzlement of Wages (§ 266a StGB)

Parallel risk in payroll cases. Sentencing hinges on contribution amounts, continuity, falsified records and banded conduct. Consequences include civil liability and social-law surcharges.
Defence: calculation correctness, partial payments, intent, internal controls.

Tax Evasion & Money Laundering

Post-reform “all-crimes” approach: any unlawful act can be a predicate offence. However, mere saved expenditure from evasion is not itself a launderable object; wrongful refunds/credits can be.
Defence: object qualification, tracing, and subjective element (intent/knowledge) for professionals.

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Capital-Market Schemes

Cum-Ex

OTC sequences around dividend dates (short sales, total-return swaps) to obtain multiple crediting/refunds of withholding tax. Courts regard claims based on assumed withholding as false/incomplete within § 370 AO.
Defence focus: economic ownership (§ 39 AO), actual tax deduction, validity of certificates, subjective element (intent), and role segmentation.

Cum/Cum

Transfers to in-country holders before record date to avoid definitive withholding. Authorities deny credit/refund where economic ownership did not actually pass.
Criminal exposure: incomplete disclosure can trigger § 370 AO; omissions may also be relevant via § 153 AO (duty to correct).
Defence: substance over form, beneficial ownership tests, disclosure quality, and audit trail.

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Sentencing & “Rule-of-Thumb” Practice (Orientation Only)

• Statutory range: fines or imprisonment up to 5 years; in particularly serious cases (e.g., large amounts, organised conduct) up to 10 years.
• Practical thresholds (indicative):
  • ≤ €15,000: discontinuation with conditions sometimes feasible.
  • ≤ €50,000: fines (often by penal order).
  • €50,000: custodial sentences possible (suspended in many cases).
  • ≥ €1 million: usually non-suspended imprisonment; suspension only in exceptional constellations with weighty mitigation.
    Defence task: challenge amount calculations, periodisation, intent, and push for proportionate outcomes.

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Limitation Periods & Time Bars (Criminal vs. Tax)

Criminal Limitation (Verfolgungsverjährung)

• Standard: 5 years.
• Particularly serious tax evasion: 15 years (extended by law).
• Interruptions (§ 78c StGB) restart the clock (e.g., first interrogation, search orders, indictment).
• Ruhen/Pausing (§ 78b StGB) now applies in tax cases (e.g., suspension pending assessment; after LG opening up to 5 years).
• Absolute caps: up to 2× (standard) or 2.5× (serious cases) the basic period—up to 37.5 years; in combination with pausing, investigative windows can effectively stretch towards ~42.5 years.

Tax Assessment Limitation (Festsetzungsverjährung)

• Ordinary: 4 years; with evasion: 10 years.
• Coupling clause: § 171 (7) AO ties tax assessment to criminal limitation—tax claims may remain open as long as prosecution is possible.

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Record Retention During Tax Criminal Proceedings (§ 147 AO)

Retention is 6 or 10 years as a rule—but functionally extends until the end of the assessment period, which itself can be prolonged by procedural steps (§ 171 AO). In evasion scenarios and pending proceedings, longer retention is practically required.
Defence: prove GoBD-compliant, machine-readable archives; avoid gaps that trigger estimates (§ 162 AO).

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Negligent Tax Understatement (§ 378 AO)

Not a crime, but an administrative offence (gross negligence). Fines up to €50,000; in some cases a leniency self-disclosure is possible.
When relevant: if intent under § 370 AO cannot be proven.
Typical duties: inform yourself, supervise delegated work, verify doubtful data; “blind signing” is risky.

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Self-Disclosure (§ 371 AO) – Opportunities and Pitfalls

A valid voluntary disclosure must be complete, correct and timely, cover all non-barred periods per tax type, and be followed by full payment (tax + interest).

• Extended limitation rules can push look-backs decades back.
• Partial or inaccurate disclosures risk ineffectiveness.
  Defence: feasibility check, scoping all periods, securing records, staged payments where available.

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Defence Strategy: How We Protect You

• Forensic accounting & data reconstruction: secure raw data, rebuild flows, expose estimation errors.
• Legal levers: attack mens rea (intent), quantify only proven minimums, challenge “savings” vs. launderable assets, and test beneficial ownership.
• Procedure: contest searches and seizures, monitor limitation clocks, leverage cooperation where beneficial, and coordinate with corporate compliance.
• Crisis moves: rapid advice on dawn raids, interview strategy, and—where suitable—self-disclosure.

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FAQs: Tax Evasion Defence in Germany

What exactly triggers § 370 AO?
False/incomplete declarations or unlawful omissions on tax-relevant facts that lead to a tax shortfall or unjustified benefit.

Is there a difference between criminal and tax limitation?
Yes. Criminal limitation (5/15 years plus interruptions/pausing) and tax assessment limitation (4/10 years) interact—§ 171 (7) AO may extend the tax window to match criminal pursuability.

How serious are VAT carousel allegations?
Very. Authorities scrutinise supply chains, input-VAT entitlements and knowledge standards. Early data preservation is critical.

Can missing gaming machine data lead to prosecution?
Yes. Absent long strips/raw data often prompt estimates (§ 162 AO) and may be read as intent. Keep complete, machine-readable archives.

Does negligent understatement lead to a criminal record?
No—§ 378 AO is an administrative offence (fine). If intent is provable, § 370 AO applies instead.

How do Cum-Ex/Cum/Cum differ?
Cum-Ex seeks multiple credit/refund of the same withholding tax through timing chains; Cum/Cum shifts shares pre-record date to in-country holders to avoid definitive withholding. Both raise beneficial-ownership and disclosure issues.

Can crypto gains trigger tax crime?
Yes, if willfully concealed. Tokens are assets; sales/swaps within one year are taxable. Keep thorough records to avoid allegations.

When is imprisonment likely?
Indicatively above €1 million evaded tax, courts often impose non-suspended custodial sentences—subject to case-specific mitigation.

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Contact – Specialist Criminal Defence for Tax Cases

Buchert Jacob Peter – Specialist Lawyers for Criminal Law (Frankfurt am Main, nationwide representation).
Phone: 069 710 33 330 · Email: kanzlei@dr-buchert.de