Subsequent declarations during an ongoing external audit – Important change to the AStBV

Tightening of the administrative instruction on the treatment of subsequent declarations during an ongoing external audit

I. Background
As soon as a taxpayer realizes before the expiry of the assessment period that a tax return submitted by him or on his behalf is incorrect, he must immediately notify the tax office and correct it (Section 153 (1) sentence 1 AO). This obligation exists irrespective of whether an external audit has already been ordered for the tax period in question or whether it has even already begun. A notification is only dispensable for the specific audit period insofar as the tax audit has already determined the error in question (AEAO to § 153 AO, No. 3 sentence 5). As part of preventive counseling, the aim is regularly to ensure that a mandatory correction report also fulfills the requirements of a self-disclosure that exempts from penalties or fines (Section 371 of the German Fiscal Code (AO)) as a precautionary measure (as a so-called self-disclosure correction). However, an exempting voluntary disclosure is no longer effectively possible for taxation periods and tax types for which an audit order has already been announced. A voluntary disclosure exempting from fines pursuant to Sec. 378 para. 3 AO is still permissible in these cases, however.

II. Previous situation of instructions of the tax authorities
The treatment of such notifications is mainly regulated within the tax authorities by the Application Decree on Section 153 of the German Fiscal Code (AO) and the Instructions for Criminal and Penalty Proceedings (Tax) (AStBV). Accordingly, voluntary disclosures (even if they are not designated as such but are at least recognizable) are and were always to be forwarded to the Office for Fines and Criminal Matters (BuStra) for examination. In addition, such declarations must also be forwarded to the BuStra where there are indications that taxes have previously been intentionally or recklessly evaded. There is no obligation to submit declarations to the BuStra if they are undoubtedly based on subsequent knowledge of the taxpayer (no. 132, para. 1 AStBV). De facto, this resulted in a very considerable scope of judgment for the assessment officer when dealing with notices of correction.

III. Change due to the AStBV 2019
Effective January 1, 2019, the current 2019 AStBV went into effect.
This massively restricts the tax offices’ scope for assessment when dealing with subsequent declarations. Specifically, the tax offices are now instructed to submit all subsequent declarations (regardless of their designation or material content) that are submitted in the course of an ongoing external audit to the BuStra for examination (No. 131 (1) sentence 2 AStBV ). In our opinion, it can be assumed that this instruction will be interpreted comprehensively by the assessment officials and that, in the case of ongoing external audits, subsequent declarations for periods not (yet) covered by this audit will also be submitted directly to the BuStra.

IV. Recommendation for action
The tightened audit procedures outlined above can prove extremely treacherous in correction and post-declaration cases. In the future, the BuStra will receive significantly more cases of supplementary declarations for review than before. This applies in particular to cases in which it is no longer possible to make an exempting voluntary disclosure due to the blocking effect caused by the external audit. It is obvious that this also increases the risk of prosecution. If the specialists in the form of the BuStra are always brought on board in correction cases on the part of the tax office, it is advisable from the company’s point of view to also involve specialized lawyers and tax consultants at an early stage, in particular also with regard to a defense under criminal tax law that may subsequently be necessary. Together with our tax experts at KPMG AG Wirtschaftsprüfungsgesellschaft, we will be happy to assist you.

Please feel free to contact us with any questions you may have on these topics.