The Fiscal Amnesty Act and its effects

Index of contents

A Content of the fiscal amnesty act in Germany
1. Filing out a declaration of amnesty
1.1 Which income should be fill in your declaration of amnesty
1.2 Which amount of income should be set in your declaration of amnesty
1.2.1 Assessment basis for capital gains
1.2.2. Assessment basis on gifts and inherited property
1.2.3. Wealth tax
1.2.4. Operational income- illegally -earned money
2. Paying the lump-sum
2.1.Time-frame for paying the lump-sum
3.Amnesty for prosecution
3.1 restrictive usage of acquired information
3.2 Which persons can use the option to free themselves from prosecution?
4. The possibilities to check the citizens by tax authorities
4.1 Demand of account information by the tax offices
5. Alternative:. Self announcement § 371/ 378 para. 3 fiscal code

B Cause research for small success of the fiscal amnesty act Comparative example calculation:
1. Accounting advantage of the fiscal amnesty act
2. Practical disadvantages with the implementation of the fiscal amnesty act

Table of figures

Case 1 Free from prosecution, interest and penalty by using the fiscal amnesty act

Case 2 Using the self-announcement

A Content of the fiscal amnesty act in Germany

If you announce your evaded incomes in a limited period voluntarily and you paid additionally a lump-sum tax on the evaded taxable income, you currently have the option to free themselves from prosecution, interests and penalties by filing a declaration of amnesty. This makes the new fiscal amnesty act possible. The amnesty is available from January 1, 1993 till March 31, 2005. By enacting this bill, the federal parliament created an offer which should be understood as a "bridge to tax honesty". This bridge could be used by citizens, who had taxable income in the past, but which do not paid the taxes or who kept it secret that they have illegally-earned money. The target group of the fiscal amnesty act are capital assets, which were invested abroad and which would like to transfer home to Germany on a legal way. Of course the offer is also designed for capital assets, which were invested in Germany and which bear interests, which are evaded taxable interests.¹

5 steps to find the way back to tax honesty

1. Filing out a declaration of amnesty during a certain time-limit
2. Paying a lump-sum
3. Free themselves from prosecution, interests and penalties
4. Because the would like to keep the citizen on the way of tax honesty, the fiscal gets more possibilities to check the activities of the citizen
5. Alternative for the fiscal amnesty act in Germany²

1. Filing out a declaration of amnesty

If you fill the declaration of amnesty out you have to give the sum of income on which you paid no taxes during the period of January 1, 1993 till December 31, 2003. The declaration of amnesty, which gives the taxpayer the option to free themselves from prosecution, interests and penalties, excludes this option for tax deduction and tax exemptions, which were created later than the October 12, 2001 independent from the idea for which year the tax deduction was planned. If you fill your tax declaration for 2002 with the evaded taxable income out, you do not get an absolution.³

You have to release your declaration of amnesty on an official form and signed it personally. You have to deliver your declaration of amnesty at your responsible tax office (§3 fiscal amnesty act). You have to write in your declaration of amnesty only two amounts, the total amount of evaded income and related to this evaded the resultant income the lump-sum, which have to calculate by your own. The declaration of amnesty is created as a as tax registration and works without any efforts of the tax office as a tax assessment. You have to register your total evaded taxable income exactly, in detail and completely on your attachment of your declaration of amnesty. That mean you have to declare your life circumstances with each individual amounts ordered by years. The law determines that you are under the obligation of furnishing proof if the tax office later discloses any tax evasion. The tax office will then assume that you did not release the disclose income in your declaration of amnesty. You can disprove this assumption only by the proof that the not paid duty incomes are contained in the declaration of amnesty (§8 para.3 fiscal amnesty act).⁴

1.1 Which income should be fill in your declaration of amnesty

Evaded income could be resulted out of capital yields or out of basis capital:

- If the evaded income, e.g. wages, were saved and only the taxes are evaded, you have to release only the evaded interest.
- If you have evaded income, e.g. illegally-earned money, you have to release the total evaded income in addition to the interest.

1.2 Which amount of income should be set in your declaration of amnesty

The evaded income has to be indicated in full height. As assessment basis for the lump-sum only certain portions are considered as taxable. Which portions are considered to be taxable depends on the types of taxes that are concerned.

1.2.1 Assessment basis for capital gains

If you deduct certain amounts from the total taxable income you only need to consider 60% of the net gain when determining the assessment amount of amnesty purposes. (§1 para. 2 fiscal amnesty act). It is not permitted to deduct the net gain by deductions like income-related expenses, interest income tax, foreign withholding tax or free allowance for saving. .⁵

1.2.2. Assessment basis on gifts and inherited property

When you deduct certain taxable amounts in according to the relevant provisions of the Inheritance and Gift Tax Act, you have to consider that this amount is subject to a lump-sum tax of 20% for amnesty purposes (§1 para.5 fiscal amnesty act). As taxable income applies only amounts, which in first step consider the different tax allowance and in second step are subject to effectively taxable in according to the relevant provisions of the Inheritance and Gift Tax Act.

1.2.3. Wealth tax

If you deduct certain amounts from the wealth tax, you have to calculate with an assessment basis of zero. You do not have to pay a lump-sum on this amount. Wealth tax were taxable until 1996 (§8 para.1 fiscal amnesty act). Even if the gross income for wealth tax is zero, the tax office requires that you declare your life circumstances in the attachment of the declaration of amnesty. You have to declare your life circumstances even if you only deduct wealth tax. (BMF-Merkblatt of 3.2.2004, Tz. 3.7).⁶

1.2.4. Operational income- illegally -earned money

If you have illegally earned money it is probable that several tax types were shortened: it’s not only possible that you deduct taxable income, but also trade income tax and value added tax income. If you deduct these 3 types of taxation the assessment basis increases from 60% of the net gain by further partial amounts:⁷

If value added tax were shortened, you only need to consider 30% of the value added tax purposes in your declaration of amnesty. In case of overstated deductible expenses in the past you now have the possibility to set the double amount (with 200 %) for amnesty purposes (§ 1 para. 4 fiscal amnesty act).⁸

If trade tax were shortened, additionally further 10 % of the incomes subject to trade tax must be set. In case of overstated deductible expenses in the past you now have the possibility to add this amount to your assessment basis (§ 1 para. 3fiscal amnesty act) If illegally -earned money were not indicated so far not only for the income tax, but also for the value added tax, you now have the possibility to set the gross incomes simplifying with 90%. If you additionally evaded trade tax, you must set for 100% the gross income. In summary you calculate and pay an uniformly lump-sum with 25 % or 35 % and paid.⁹

2. Paying the lump-sum

The amnesty is available from January 1, 1993 till March 31, 2005. With this time period, two different rates are applied in determining the lump-sum tax.

- If you fill the declaration of amnesty in the time of January 1, 1993 till December 31,2004 out, you have to pay a lump-sum of 25% on the avowed incomes
- If you fill the declaration of amnesty in the time of January 1, 204 till March 31,2005 out, you have to pay a lump-sum of 35% on the avowed incomes.¹⁰

If you pay your lump-sum within 10 days, you already paid also the solidarity tax and the church tax. Departure taxes, which were raised on the after-avowed incomes, e.g. German interest income tax or foreign withholding tax are not permitted to be taken into account. The lump-sum is not removable as operating expense or income-related expenses, even if excluding operational incomes were after-explained..¹¹

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¹ www.ey.com/ch/financial-services Seite 23-26

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¹⁰ www.pplaw.com.

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