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Unreported income in foreign accounts – Immunity still possible through voluntary disclosure

June 2019 - Tax & Private Client. Legal Developments by GRP Rainer LLP.

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Voluntary disclosure leading to immunity from tax evasion charges is still a current topic. It remains the only way of returning to a state of tax compliance.

Voluntary disclosure is still a means of obtaining immunity from tax evasion charges. While there has been a continuing downward trend since the rules were tightened, 2018 still saw 1727 voluntary declarations submitted to the tax authorities according to a survey of Germany’s 16 state ministries of finance (of the “Länder”) conducted by the German business newspaper Handelsblatt. The survey covered voluntary declarations relating to unreported income in foreign accounts, with only Lower Saxony not distinguishing between voluntary declarations associated with foreign accounts and those with a different background.

Despite the fact that the number of voluntary declarations has been in decline since the peak in 2014, the assumption is that there is still untaxed income from foreign accounts. We at the commercial law firm GRP Rainer Rechtsanwälte note that while it remains possible to submit a voluntary declaration and return to a state of tax compliance, this should not be put off any longer. This is because voluntary disclosure can only result in immunity from tax evasion charges if the declaration is complete and was submitted on time, which is to say, the tax evasion must not yet have been discovered by the tax authorities.

Due to the automatic exchange of fiscal information, which around 100 countries participated in last year, it is almost impossible to conceal untaxed, unreported income abroad from the exchequer. That said, it will take some time for the information to be forwarded to and evaluated by the competent tax offices. This period can be used to submit a voluntary declaration just in time.

However, the requirements for an effective voluntary declaration are strict, which is why it should not be prepared alone or with help of standard templates. Each case is different, making it nearly impossible to account for all of the events and transactions that are relevant to a given case. Even minor errors can result in voluntary disclosure not leading to immunity.

To avoid these kinds of mistakes, lawyers experienced in the field of tax law ought to be consulted. They know what information needs to be included in the voluntary declaration and can ensure that it meets all the requirements set out by the legislature.

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