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Internal Control Systems (ICS) to prevent criminal intent

If you detect a tax infringement in your company, you do not necessarily have to directly resort to self-incrimination (German Selbstanzeige). Even a simpler correction notification may be possible in some cases. The Federal Ministry of Finance has commented on this issue in May 2016 and explained how to draw the line between simple correction notifications and self-incriminations. Major novelty: The Ministry considers the existence of an internal control system (ICS) as an indicator that the responsible managers of a company had no intent to evade tax.

What to do after detecting a tax infringement in the company?

Mistakes happen in every company. When detecting tax or customs-related infringements, the responsible persons will often ask themselves whether a simple notification of the detected infringement with the competent authority will be sufficient to meet the company’s obligations under tax law or whether the company must comprehensively clarify the infringing circumstances by way of self-incrimination. Effective self-incrimination always leads to an exemption from punishment for the responsible managers.

Simple correction notification vs. self-incrimination

In either cases, whether a simple correction notification is concerned or self-incrimination to avoid punishment, a tax evasion has objectively taken place in the past. Hence, the only way to differentiate between a simple correction notification and self-incrimination to avoid punishment is to determine whether there was intent.

However, as “knowledge” and “willfulness” take place in the minds of the persons involved only, it cannot always be easily clarified whether or not the responsible managers acted knowingly and willfully. In practice it is, hence, extremely difficult to determine what level of knowledge within a company actually exceeds the threshold of tax fraud.

No intentional behavior with ICS

Now, the Ministry of Finance explained that the implementation of an internal control system (ICS) was an objective indicator showing that, concerning tax evasion, the responsible managers in the company could not be accused of an intent that would fall under criminal law. In this case, infringements detected could to be notified to the fiscal authorities by a simple correction notification.

In principle, all companies that delegate responsibilities for tax and customs duties to employees are therefore recommended to implement a comprehensive ICS. If you have any questions regarding the implementation of such control systems for companies, we will be pleased to advise you. Our specialist German tax lawyers look forward to answering your inquiry.

Continue reading:
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German Tax Law and Tax Advice for Business Companies

Bartosz Dzionsko

Bartosz Dzionsko

Bartosz Dzionsko is a German attorney at law at WINHELLER headquarters in Frankfurt/Main. He specializes in German tax law, criminal tax law, money laundering and German customs law.

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