Federal Court of Justice, 17.03.2009, Ref.: 1 StR 479/08
The managing director, as the legal representative, is responsible for ensuring compliance with all obligations that apply to the legal entity he represents, including the payment of due taxes and submission of declarations to tax authorities (see § 34 of the German Fiscal Code – AO).
This also includes the obligation stipulated in § 18(1) of the German Value-Added Tax Act (UStG), which requires the entrepreneur to submit a preliminary VAT return by the 10th day after the end of the pre-registration period, in which the VAT for that period must be calculated by the entrepreneur.
If the managing director does not properly fulfill this obligation, he commits VAT evasion pursuant to § 370(1) AO in conjunction with §§ 1(1) No. 1, 16(1), and 18(1) and (2) UStG.
§ 370(1) UStG outlines three offenses that can be punishable by imprisonment for up to five years or by a fine:
- providing tax authorities or other authorities with incorrect or incomplete information about tax-relevant facts,
- failing to inform the tax authorities about tax-relevant facts, in violation of duty, or
- failing, in violation of duty, to use tax stamps or tax signs.
The offense of tax evasion can therefore be committed both by an act or by omission of the managing director of a GmbH.
Tax evasion by managing directors (GmbH, KG) is often the subject of court decisions (see, e.g., 1 StR 90/09, 1 StR 105/10, 1 StR 416/08, 1 StR 479/08).
The aforementioned decision, 1 StR 479/08, dealt with the offense of VAT evasion by omission.
In this case, the managing director of a KG deliberately failed to fulfill his obligation to submit the annual VAT return and his legal obligation to notify and correct errors under § 153(1) Sentence 1 No. 1 AO by intentionally not correcting significant mistakes made by his accountant in the submission of preliminary VAT returns.
1. Facts and Background
In this case, the managing director of a limited partnership (KG) was involved in a dispute with the tax office. The KG had significant delays in its electronic bookkeeping, making it difficult to accurately capture revenues and input VAT. As a result, the accounting data was incomplete, which led to a lack of essential information in the accounting department. To meet the deadlines for submitting preliminary VAT returns, an employed tax specialist manually prepared these returns, relying on the available invoices.
However, serious errors were made by the tax specialist, and it was found that the declared revenues in at least five months were significantly lower than the actual revenues. This was discovered during a VAT audit by the tax office. The tax authority informed the managing director of the KG about the irregularities, making him aware that not only were the returns for these five months incorrect, but it was likely that returns for other periods were also incorrect.
Despite this knowledge, the managing director failed to submit a correct annual VAT return, which would have also fulfilled his obligation to correct the inaccurate preliminary returns under § 153(1) No. 1 AO. This correction would have been easy, as the KG’s bookkeeping had been sufficiently updated to provide accurate sales figures. Nevertheless, he consciously decided against making the correction and thus against submitting an accurate annual VAT return.
2. Decision of the Federal Court of Justice (BGH)
The Federal Court of Justice (BGH) was tasked with the criminal evaluation of this behavior. The lower court had convicted the defendant of tax evasion under § 370(1) No. 2 AO for failing to submit a correct annual VAT return. The BGH largely upheld the lower court’s view but made a crucial clarification regarding the defendant’s tax obligations.
According to the BGH, the duties to notify and correct inaccurate VAT returns under § 153 AO and to submit an annual VAT return under § 18(3) UStG are independent of each other. This means that, regardless of whether individual or all VAT returns for a year are incorrect, the taxpayer is still obliged to submit an annual VAT return.
The BGH noted that a taxpayer who is required to submit monthly VAT returns must submit a total of 13 tax returns per calendar year—12 monthly returns and one annual return. The obligation to submit the annual return exists regardless of whether the monthly returns were accurate or erroneous. In certain situations, the constitutional right against self-incrimination may lead to a suspension of the obligation to submit an annual VAT return. This could occur, for example, if the taxpayer is notified that a criminal investigation has been initiated for failing to submit accurate returns.
3. Duty to Correct under § 153 AO
A key point in the BGH’s decision was the distinction between the duty to submit an annual VAT return and the duty to correct under § 153 AO. The duty to correct under § 153 AO is a separate obligation that arises only when the taxpayer realizes that a tax return they submitted, or was submitted on their behalf, is incorrect or incomplete. In such cases, the taxpayer must immediately notify the tax authorities and correct the inaccuracies.
This duty to correct under § 153 AO exists independently of the obligation to submit an annual VAT return. The taxpayer is not required to submit a new tax return but is obligated to correct the erroneous returns. Thus, § 153 AO does not impose a direct duty to submit a truthful annual return. However, the duty to correct can be fulfilled by submitting a correct annual return, which implicitly corrects the inaccurate returns.
4. Fulfillment of the Offense
The BGH ruled that the defendant committed the offense of tax evasion under § 370(1) No. 2 AO, primarily by failing to submit a correct annual VAT return for 2002. The defendant was aware that the VAT returns for several months were incorrect, yet he neither corrected them nor submitted a correct annual return.
By failing to submit the annual return, the defendant sought to secure the tax benefits gained through the inaccurate returns. This act fulfilled the offense of tax evasion under § 370(1) No. 2 AO. The failure to fulfill the correction obligation under § 153 AO also contributed to his criminal liability. The BGH confirmed that both the complete failure to correct and the submission of a falsely corrected return are punishable.
In conclusion, the BGH determined that the defendant’s deliberate failure to correct the inaccurate returns and submit a correct annual VAT return constituted the offense of tax evasion.
You can find an interesting article on the correct choice of legal form of a German company here.
Source: Federal Court of Justice
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