Tax corrections: overview of correction declarations and voluntary disclosures

1. Correction pursuant to sec. 153 AO: Obligation to report and correct

Any taxpayer who, after submitting a tax return, realises that it was incorrect or incomplete and that this has resulted or could result in tax being underpaid is obliged to report this to the tax authorities ‘without delay’. Without delay means that the report must be made without unnecessary delay. There is currently no case law on the question of how long this may be. In specialist literature, timelines ranging from a few days to several weeks are discussed.

Important information:

• The obligation to correct does not apply if the error was already known when the return was submitted (fraudulent behaviour). In such cases, the option of voluntary disclosure with exemption from punishment is available.
• According to the case law of the Federal Court of Justice (Bundesgerichtshof, “BGH”), an obligation to correct may already exist if the taxpayer originally only suspected that the information was incorrect but later obtained certain knowledge of its inaccuracy. The tax authorities also follow this broad interpretation.

Violation of this obligation may result in criminal liability for tax evasion by omission (sec. 370 in conjunction with sec. 153 of the AO).

Important practical aspect:

Even if only a tax correction is actually required, tax authorities often relate such a notification to an initial suspicion of tax evasion and consider it as a (attempted) voluntary disclosure. The Federal Ministry of Finance (Bundesfinanzministerium) has clarified that not every objective inaccuracy suggests a tax offence. Nevertheless, for their own protection, taxpayers are advised to always base corrections pursuant to sec. 153 AO on the strict formal requirements of voluntary disclosure.

2. Voluntary disclosure pursuant to sec. 371 of the AO: Removal of criminal liability

In the event of (possible) tax evasion, the personal criminal exemption of voluntary disclosure can be used. Voluntary disclosure is a central element of criminal tax law, but its effect is narrow and clearly limited.

a) Requirements for voluntary disclosure exempting from punishment

• Comprehensive supplementary declaration: The complete and correct retroactive disclosure, supplementation or correction of all information relating to all tax offences of a particular type that are not time-barred is required under sec. 371 (1) AO. A partial voluntary disclosure in which not all relevant facts are disclosed does not eliminate criminal liability.
• Personal character: The effect of the voluntary disclosure always applies only to the specific perpetrator, instigator or accomplice who makes the disclosure. For comprehensive exemption from punishment, several parties involved must therefore each submit their own complete voluntary disclosure or effectively join in.
• Exclusion: Sec. 371(2) AO sets out various constellations in which a voluntary disclosure can no longer have an exempting effect. These include:
  • Announcement of an external tax audit or initiation of criminal or administrative fine proceedings,
  • Already discovered tax offence,
  • Exceeding certain amount thresholds (e.g., additional taxes exceeding EUR 25,000).
• Obligation to make additional payments: Taxes already evaded and any interest incurred must be paid in full within a period set by the tax office for the voluntary disclosure to take effect.

b) Voluntary disclosure exempting from fines (sec. 378 AO)

For less serious offences, the law also allows for voluntary disclosure with exemption from fines. The formal requirements are less strict in this case (e.g., the requirement of completeness does not apply), and voluntary disclosure remains possible even during an ongoing tax audit. The blocking effect only takes effect upon notification of the initiation of administrative offence proceedings.

Conclusion

Correcting tax errors always requires a forward-looking and precise approach. Due to the fine line between purely tax-related and criminally relevant corrections, it is always advisable to follow the strict requirements for voluntary disclosure in cases of doubt. Any form of subsequent disclosure and correction should be carried out with legal assistance to avoid serious consequences, including criminal liability.

As a specialist law firm for tax and commercial criminal law, we are happy to provide you with further information or individual advice.