Voluntary Disclosure Under § 371 AO

Voluntary disclosure under § 371 AO: the short answer

A voluntary disclosure (Selbstanzeige) under § 371 of the Fiscal Code (AO) allows a person who has committed tax evasion to obtain exemption from punishment by correcting all incorrect or incomplete information, or by submitting omitted information, for all tax offences of one type of tax, and by paying the evaded tax plus interest within a set deadline. The disclosure must cover all tax offences of that tax type that are not yet time-barred, and at least those of the last ten calendar years (§ 371(1) AO).

It fails if one of the blocking grounds in § 371(2) AO applies, for example because an audit order has been announced, an investigation has been opened, the offence has already been discovered or the evaded tax exceeds EUR 25,000 per offence. In the last case, prosecution can still be dropped against payment of an additional amount of 10% to 20% under § 398a AO.

A voluntary disclosure is distinct from a correction under § 153 AO, which every taxpayer must make without delay when it subsequently realises that a return was incorrect, even if no offence was committed. Distinguishing the two is often the most important strategic question for companies and individuals who discover past errors.

Requirements for exemption from punishment

Exemption from punishment requires a complete correction. The person must correct all incorrect information, supplement all incomplete information or submit all omitted information for all tax offences of the relevant type of tax, covering all offences not yet time-barred under criminal law, and at least the last ten calendar years. Partial disclosures, for example only for the years an auditor is likely to examine, do not lead to exemption. Small deviations may be tolerated in practice, but the risk lies with the person making the disclosure.

Where taxes have already been evaded, exemption also requires payment. The person must pay the evaded taxes in their own favour, interest on evaded taxes under § 235 AO and, where applicable, interest under § 233a AO credited against it, within the reasonable deadline set by the tax office (§ 371(3) AO). If payment is not made in time, exemption does not occur. Liquidity planning is therefore part of every voluntary disclosure.

The disclosure must be made to the competent tax office. It must contain the figures, at least in a form that allows the tax office to assess the tax without extensive further investigation. Where exact figures are not yet available, a disclosure based on cautious, slightly higher estimates can be filed first and refined later, which is common when time is short.

Limitation periods and the ten-year rule

Criminal limitation for tax evasion is generally five years and, in especially serious cases, longer; the tax assessment period for evaded taxes is ten years. Because the disclosure must cover all offences not yet time-barred under criminal law and at least the last ten calendar years, it often reaches further back than the criminal limitation period alone would suggest. Records for early years may be incomplete, so careful estimates and documentation of the estimation method are necessary. Interest on evaded taxes of 0.5% per month for the period of evasion, under § 235 AO, can make the financial burden for older years significant.

Blocking grounds

Under § 371(2) AO, exemption from punishment does not occur if, before the correction:

• an audit order under § 196 AO was announced to the offender, his representative, the beneficiary or its representative, limited to the substantive and temporal scope of the announced audit;
• the opening of criminal or administrative offence proceedings was announced to the offender or his representative;
• an official of the tax authority appeared for a tax audit, limited to its scope;
• an official appeared to investigate a tax offence or administrative tax offence;
• an official appeared for a VAT, wage tax or other inspection and identified himself;
• one of the offences had already been discovered in whole or in part and the offender knew or should have expected this;
• the evaded tax or unjustified tax advantage exceeds EUR 25,000 per offence; or
• an especially serious case of tax evasion within the meaning of § 370(3) sentence 2 nos 2 to 6 AO applies.

The blocking effect of an audit order or the appearance of an auditor applies only to the taxes and periods within the scope of the audit; a disclosure for other periods or taxes remains possible (§ 371(2) sentence 2 AO). Discovery is a factual question: purchases of data, information from foreign tax authorities under automatic exchange of information or reports by insiders can lead to discovery before the taxpayer learns of it.

Amounts above EUR 25,000: § 398a AO

Where the evaded tax exceeds EUR 25,000 per offence, or an especially serious case applies, the voluntary disclosure does not lead to exemption from punishment. However, the prosecution authorities refrain from prosecution if the offender, within a reasonable deadline, pays the evaded tax, interest and an additional amount in favour of the state (§ 398a(1) AO). The additional amount is 10% of the evaded tax if the evaded amount does not exceed EUR 100,000, 15% if it exceeds EUR 100,000 but not EUR 1 million, and 20% above EUR 1 million. The amount is not refunded if the proceedings are later reopened, which is possible if the disclosure proves incomplete or incorrect.

The threshold of EUR 25,000 applies per offence, meaning per tax, per tax period and per return. For a business with several taxes and years, some offences may be below the threshold and others above it, so that exemption applies to some and § 398a to others. The calculation of the evaded amount follows § 370(4) AO.

Correction under § 153 AO versus voluntary disclosure

Under § 153(1) AO, a taxpayer who subsequently recognises, before the assessment period has expired, that a return submitted by or for it is incorrect or incomplete and that this can lead or has led to a tax shortfall must notify the tax office without delay and make the correction. This duty also applies to legal successors and to persons acting for the taxpayer, such as managing directors. A correction under § 153 AO presupposes that the original error was not intentional; if the person acted with intent, the correct instrument is a voluntary disclosure under § 371 AO with its stricter requirements.

The distinction matters because a correction does not have to meet the completeness requirement or the payment deadline in the same way, while a voluntary disclosure does. In practice, the boundary between negligence, recklessness and conditional intent is often unclear, especially in companies where returns are prepared by many people. Where intent cannot be ruled out, it is usually safer to structure the correction so that it also meets the requirements of a voluntary disclosure. Failure to correct after recognising an error can itself constitute tax evasion by omission.

Recklessly understated taxes are an administrative offence under § 378 AO, punishable by a fine of up to EUR 50,000. No fine is imposed if the offender corrects the information before the opening of criminal or administrative proceedings is announced to him and pays the understated tax in time (§ 378(3) AO). Many corrections in companies fall into this category.

Voluntary disclosure in companies

In companies, the persons who may have committed tax evasion are the managing directors, board members and employees responsible for returns, not the company itself. A voluntary disclosure should therefore be made on behalf of all potentially involved persons, and the company is liable for the taxes as taxpayer. Corporate fines under § 30 of the Administrative Offences Act and liability for failure to supervise under § 130 can also be relevant. Internal investigations into past errors must be designed so that their findings can be used for a timely disclosure; see our page on internal investigations.

Advance VAT returns and wage tax returns have a special rule. For offences committed by failing to file correct advance returns on time, a correction during the year can lead to exemption to the extent of the correction, and the EUR 25,000 threshold does not apply; this does not apply to annual returns (§ 371(2a) AO). This allows businesses to correct monthly VAT returns within the year without having to make a complete disclosure for all periods.

Illustration: during an internal review, a German subsidiary discovers that it has not charged German VAT on certain supplies for four years and that a former finance manager deliberately ignored warnings. The VAT shortfall per year is EUR 60,000. Because each annual VAT offence exceeds EUR 25,000, exemption from punishment is not available, but the managing directors can file a complete disclosure for all VAT periods and pay the tax, interest and an additional 10% under § 398a AO. In parallel, the company reviews whether corporate income tax returns are also affected. Our article on handling a German tax audit explains how such issues often surface in audits.

How TRW & Co helps with voluntary disclosure

We advise companies, managing directors and private clients on voluntary disclosures and corrections: assessing whether § 153 or § 371 AO applies, checking blocking grounds, preparing complete disclosures under time pressure, coordinating the calculation of tax and interest, and negotiating payment deadlines. We represent clients in proceedings under § 398a AO, in tax criminal investigations and in parallel tax audits, and we advise on the corporate consequences, including fines and liability. Our white-collar defence and tax teams work together on these matters. To discuss your situation confidentially, contact us. This article provides general information and is not tax or legal advice.