Compliance in Germany - Tax Compliance

Transcription

1 Compliance in Germany - Tax Compliance Sascha Kuhn Bernulph von Crailsheim April 21, 2015

2 Overview I. Why Compliance should care about taxes II. Organisational aspects III. Tax law bear traps IV. Tax correction./. Voluntary self disclosure V. Key messages 1 / L_LIVE_EMEA1: v1

3 Why compliance should care about taxes (I) Tax evasion (Sect. 370 Tax Code): A penalty of [ ] imprisonment or a monetary fine shall be imposed on any person who 1. furnishes the revenue authorities or other authorities with incorrect or incomplete particulars concerning matters of substantial significance for taxation, 2. fails to inform the revenue authorities of facts of substantial significance for taxation when obliged to do so, or and as a result understates taxes or derives unwarranted tax advantages for himself or for another person." Goals of tax compliance systems in general 1. Minimizing individual as well as corporate criminal and tax liability risks arising from tax obligations 2. Compliance with legal obligations regarding a company s tax strategy Tax laws are complied with and violations do not happen Organizational structures must be maintained in a way to ensure this 2 / L_LIVE_EMEA1: v1

4 Why compliance should care about taxes (II) Legal representatives, executive bodies and employees do not violate their organizational and supervisory duties Plausible deniability for violations of organizational and supervisory duties is created by maintaining a well-structured tax compliance system Most relevant tax laws for companies: VAT, wage tax, corporate tax, trade tax 3 / L_LIVE_EMEA1: v1

5 Organisational aspects Organizational areas for a tax compliance system: Information structure Responsibility structure Supervision structure Information structure: information base and information flow Analysis and documentation of vulnerabilities and failures in the past, in-house information and knowledge transmission to tax department and employees Responsibility structure: Responsibilities for tax compliance on all company levels (executive, management, employee), external counsel Supervision structure: for responsibility and information structure as well as external counsel 4 / L_LIVE_EMEA1: v1

6 Tax law bear traps (I) General differentiation between federal taxes and municipal taxes Most relevant municipal tax for companies: trade tax Depending on the municipality: 7 17,5% Collected by municipality once a year Advance payments have to be made on fixed dates every year: 15 February, 15 May, 15 August, 15 November Value added tax: 19%, reduced rate for certain products and services: 7% Generally monthly VAT returns and VAT payments Relevant VAT must be specified on incoming and outgoing invoices 5 / L_LIVE_EMEA1: v1

7 Tax law bear traps (II) Employer responsibilities regarding its employee s income tax (wage tax): Registration of employee with relevant tax office, including tax class and work status Withholding income tax, solidarity tax and church tax (if applicable) from employee s monthly gross salary and forwarding it to relevant tax office Registration of employee with respective health insurance for the monthly payment of social contributions: Employer and employee each pay one half of the contributions Employer withholds employee contributions and pays all contributions directly to health insurance Non-payment of social contribution regularly results in criminal liability Employee responsibility: Filing annual tax returns Responsibility to pay monthly taxes and contributions cannot be shifted to employee in contract 6 / L_LIVE_EMEA1: v1

8 Tax law bear traps (III) Taxation of company income: Tax office determines advance tax payments based on last year s profits or this year s estimated profits Advance payments have to be made to the tax office on fixed dates every year: 10 March, 10 June, 10 September, 10 December Flat tax on profits: % (including solidarity surcharge) Tax relevant problem areas in determining profits: Internal transfer pricing as a tool affecting the final amount of profits Granting benefits to parties associated with the company may be interpreted as hidden profit distribution Always use arm s length principle to evaluate transfer pricing and benefits internally Strictly adhere to the documentation obligations established by the relevant tax code(s) 7 / L_LIVE_EMEA1: v1

9 Tax correction./. Voluntary self disclosure Options to react to discovery of (partly) inaccurate tax returns: 1. Immediate reporting to the tax office if negligent mistakes resulted in (partly) wrong returns Tax correction (Sect. 153 Tax Code) No criminal liability 2. Mistakes in tax returns are knowingly not reported to tax office or wrong tax returns were intentionally filed from the beginning on Behavior constitutes criminal tax evasion (Sect. 370 Tax Code) All actors involved may be held criminally liable 3. A possible way out in most cases: Voluntary self disclosure in order to be exempted from criminal liability Last ten year period must be covered in voluntary self disclosure Payment to tax office covers: Taxes + interests + punitive interests Voluntary self disclosure must be made before tax evasion is officially discovered 8 / L_LIVE_EMEA1: v1

10 Key messages Clear definition of responsibilities for tax compliance on all company levels Tax compliance is not only relevant in the finance department but spans all company areas Responsibilities for companies exist for both taxes on company income and employee income Voluntary self disclosure is less desirable than ensuring intentional noncompliance is ruled out 9 / L_LIVE_EMEA1: v1

11 Questions? Sascha Kuhn Partner, Litigation & Compliance Simmons & Simmons LLP DD M sascha.kuhn@ simmons-simmons.com Dr Bernulph von Crailsheim Partner, Tax Simmons & Simmons LLP DD M bernulp.voncrailsheim@ simmons-simmons.com simmons-simmons.com simmons-simmons.com elexica.com elexica.com This document is for general guidance only. It does not contain definitive advice. SIMMONS & SIMMONS and S&S are registered trade marks of Simmons & Simmons LLP. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated practices. Accordingly, references to Simmons & Simmons mean Simmons & Simmons LLP and the other partnerships and other entities or practices authorised to use the name Simmons & Simmons or one or more of those practices as the context requires. The word partner refers to a member of Simmons & Simmons LLP or an employee or consultant with equivalent standing and qualifications or to an individual with equivalent status in one of Simmons & Simmons LLP s affiliated practices. For further information on the international entities and practices, refer to simmonssimmons.com/legalresp. Simmons & Simmons LLP is a limited liability partnership registered in England & Wales with number OC and with its registered office at CityPoint, One Ropemaker Street, London EC2Y 9SS. It is authorised and regulated by the Solicitors Regulation Authority. A list of members and other partners together with their professional qualifications is available for inspection at the above address. 10 / L_LIVE_EMEA1: v1

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