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Tax fraud

Günther Birkenstock /ai
April 24, 2013

The boss of Bayern Munich has admitted to tax fraud, turning himself into authorities for his misdeeds. German law offers rewards to those who own up to tax fraud, but the opposition would like to see such laws change.

A German book of laws (c) pbilder - Fotolia.com
Image: pbilder - Fotolia.com

For soccer boss Uli Hoeness, the move was like an emergency brake. The president of soccer giant Bayern Munich admitted that he hid money in a Swiss bank account for years without paying proper taxes on it. It's still not clear exactly how much he was hiding, nor how much he owes in back taxes. But media reports suggest that amount could be several million euros. By turning himself in to tax authorities, Hoeness might get around a sentence which could have included a hefty fine or even a prison sentence.

But in such cases of confession, certain conditions must be met in order to avoid conviction, explains Berlin-based tax expert Martin Wulf. Volunteering an amended tax return only helps if the authorities are not yet investigating one's case, for example.

However, the amount of taxes withheld from the government does not play a role, Wulf told DW. "Even someone who earns three million a year and doesn't pay taxes on that can later hand himself in," he noted.

Dr. Martin Wulf (photo: Günther Birkenstock)
Martin Wulf explains that tax evaders must meet certain conditions to avoid prosecutionImage: privat

Getting off the hook

Admitting to tax fraud represents the only instance in German criminal law where handing yourself in can get you off the hook entirely. But the same option exists in almost all western countries, explains Wulf - although the regulations differ from state to state in the US.

Ever since German authorities bought the first sets of data on tax fraudsters in 2010 - CDs stolen from foreign banks and sold to Germany - there has been a steep rise in the number of German tax dodgers who admit to their past crimes. Several high-profile scandals followed the purchase of data - for instance, when former Deutsche Post head Klaus Zumwinkel got picked up by the police from his home. In 2010 alone, some 29,000 people admitted to tax fraud, and their debts from past years accumulated to some 1.5 billion euros ($1.95 billion) for Germany's coffers.

Last year, the German government tried to come to a tax agreement with Switzerland. Under the deal, money parked on Swiss accounts was to be taxed retroactively - in one fell swoop and anonymously, meaning tax dodgers would not face the shame of public identification. But opposition parties blocked the deal in Germany's upper house, the Bundesrat.

A CD with Swiss flag on it (photo: Frank Rumpenhorst dpa/lhe)
CDs with data stolen from foreign banks provide German tax authorities with valuable informationImage: picture-alliance/ dpa

"We viewed this planned tax agreement with a certain degree of skepticism," says Reiner Holznagel, president of the German Taxpayers Federation (BdSt). The organization has expressed concerned about the prospect of offering tax dodgers a kind of amnesty.

"But that is probably the only way to get all of them to pay their back taxes," Holznagel believes, adding that with purchasing CDs of tax data stolen from foreign banks, only a very small number of people would actually get caught.

Disaccord over tax deal with Switzerland

Soccer boss Hoeness claims that he had been hoping for the agreement to go through. Once it didn't, he eventually admitted his crime. Now, Merkel's government and the opposition disagree as to whether tax dodgers should still have the option of getting their fines reduced if they come forward and confess.

"There's no serious evidence that the fact that people can reduce their sentence by handing themselves in actually reduces tax evasion," says Joachim Poss, deputy floor leader of the opposition Social Democrats. Members of the Left Party and the Greens mostly seem to agree with him. Lisa Paus of the Greens, a member of the parliament's finance committee, has called for a "higher hurdles than in the past" for turning oneself in, and she argues that repeat offenders shouldn't be able to benefit from the scheme.

Reiner Holznagel (photo: Tim Brakemeier dpa/lbn)
Reiner Holznagel says the government's approach on tax fraud is not ideal - but efficientImage: picture-alliance/dpa

The governing coalition disagrees. Michael Meister, deputy floor leader for Angela Merkel's conservatives, dismissed calls for abolishing the laws on turning oneself in for tax fraud. Without that option, he believes many offenses would go undiscovered. Volker Wissing of Merkel's junior coalition partners, the Free Democrats, describes the regulation as "appropriate in its current form." Wissing argues that, in many cases, allowing individuals to file amended tax returns generates more tax revenue than leveling criminal proceedings against the people in question.

Ingrid Herden, spokeswoman of the Finance Ministry for the state of North Rhine-Westphalia, told DW, "There was a sharp increase in the number of people who reported themselves once the tax deal with Switzerland didn't pass. North Rhine-Westphalia has thus far taken in some 670 million euros that way." The states of Baden-Württemberg, Hesse and Rhineland-Palatinate have recorded similar successes.

Volker Wissing Copyright: imago/Metodi Popow
Volker Wissing believes the tax evasion law is "appropriate in its current form"Image: imago/Metodi Popow

It is not only the CDs with tax data that are making life ever more difficult for tax dodgers. There are also fewer and fewer tax havens. Many Swiss banks are now recommending that their German customers come clean with the German tax authorities. Those who don't go along risk having their accounts closed.

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