Reasons for mitigating penalties in the event of the perpetrator and beneficiary of a tax offence falling apart

28.01.2019

Deutsche Version

In criminal proceedings for accusations of tax evasion, the amount of the reduced taxes has a decisive effect on the sentencing. The statutory requirement of § 370 (3) no. 1 AO, the so-called „large scale“, is of particular indicative importance here. A penalty can only be reduced if there are mitigating grounds. This also applies if the perpetrator of a tax evasion was not economically favoured by his own actions.

Tax adviser’s question: My client, as an employee of the tax department of a company, has significantly reduced taxes in favour of the company. The company repaid the reduced taxes in full, but appealed against the tax assessments. Is this appeal, over which my client has no control, detrimental to his sentencing? Are there any other aspects that could benefit my client?

Answer from the defence counsel: The amount of the reduced tax is an important cornerstone in the choice of the penalty framework and in the concrete sentencing. The Federal Supreme Court has established „value limits“ here in many years of jurisdiction. Exceeding these limits has an indicative effect for the sentencing; however, an attribution on the basis of various circulating tables of evasion is still forbidden. For example, from a six-figure evasion amount, the imposition of a fine should only be appropriate in the case of important mitigating reasons. From a tax reduction of EUR 1 million, a prison sentence that can be suspended on probation can only be considered for particularly important mitigating reasons.

The principles of sentencing can be found in § 46 StGB. Accordingly, the guilt of the offender forms the basis for the assessment of the penalty. The effects to be expected from the punishment for the offender’s future life in society must be taken into account in accordance with the statutory provisions. The court must weigh the circumstances that speak for and against a perpetrator against each other. Here, for example, the motives and aims of the offender must be taken into account, the degree of breach of duty, the type of execution and the indebted effects of the offence, the offender’s past life, his personal and financial circumstances as well as his behaviour after the offence, especially his efforts to make good the damage. A full and timely confession always works in favour of the perpetrator. The absence of criminal record entries also regularly has a positive effect on a perpetrator. However, these are not weighty or even particularly weighty mitigating grounds with which, for example, a prison sentence could be effectively counteracted.

In the present case, the client had reduced the taxes in favour of his employer, the offender and the beneficiary thus fall apart. The client had no economic advantage from his act, but could not make up for the damage personally due to lack of ability to pay. As a taxpayer, the company had immediately repaid the tax loss.

The Federal Court of Justice (BGH) last decided in its judgment of 15 May 18 (1 StR 159/17, call-off no. 204934, PStR 19, 12 et seq.) that the repayment of the shortened taxes by the company in favour of the perpetrator should also be considered as an important reason for mitigating the punishment as subsequent compensation for damages. The company’s objection to the tax assessment did not change the mitigating effect. Even if the damage caused by evasion at the time the employee was sentenced was thus only provisionally established and had not yet been finally remedied due to the lack of validity of the decisions, the repayment of the tax damage established at the time the sentence was pronounced must have a mitigating effect on the employee’s punishment. The BGH considers here that it is completely outside the sphere of the employee whether the company lodges an objection. In order to avoid disadvantages for the client, the individual defender should coordinate with the company’s legal and tax representatives already in the preliminary proceedings.

If the perpetrators and beneficiaries of a tax evasion fall apart, the Federal Court of Justice considers that it must continue to be taken into account in favour of the employee that the tax reductions were caused purely financially not for reasons of self-interest, but for reasons of third-party benefit (Federal Court of Justice 15.5.18, loc. cit., marginal 39). In the case to be decided, the employee was also threatened with a claim by the employer for the tax losses caused by the offences. Such recourse, especially if it threatens to destroy an employee’s livelihood due to the amount of the reduced taxes, can also be cited as a reason for mitigating the penalty, as can a liability notice pursuant to § 71 AO.