Through the crisis without punishment!

On (tax) criminal law risks in connection with aid measures on the occasion of the Corona crisis and how to counter them

I. Background
The Corona crisis has led to extensive and unprecedented federal and state relief efforts. This involves tax measures, the granting of loans and subsidies, and the provision of short-time working allowances. In order to enable rapid assistance, the assistance measures are to be granted without increased proof of the existence of the prerequisites. However, anyone who provides false information risks incurring criminal liability.
Below is an overview of the criminal tax and criminal law risks associated with relief efforts and how to guard against them.

II. Tax aid measures
In its letter dated March 19, 2020, the German Federal Ministry of Finance (BMF) concedes three tax measures to avoid undue hardship for victims of the coronavirus:
– Deferral of taxes already due or due to become due
– Requests for adjustment of advance tax payments
– Waiver of enforcement action.

1. requirements

What all three relief measures have in common is that they apply only to taxpayers who can be shown to be “directly and not insignificantly affected.”

“Directly affected” in this context may mean, from the perspective of the authorities, that the economic damage must be caused by the Corona pandemic (“Corona-related” damage).

2. aspects of criminal tax law

According to the BMF’s guidance, the applications of taxpayers for the granting of the tax assistance measures are not to be rejected because the taxpayers are unable to prove in detail the value of the damages they have incurred. Nor are strict requirements to be applied when verifying the conditions for deferrals.

Now, these facilitations within the framework of the approval of the fiscal aid measures do not mean that the requirements do not have to be met or that they do not have to be met in full. Despite the simplified obligation to provide evidence when submitting an application, it can be assumed that the financial and criminal prosecution authorities will carry out detailed checks to ensure that the requirements are met.

If the prerequisites are not met and tax assistance measures are nevertheless applied for, intentional action will constitute tax evasion pursuant to Sec. § 370 AO and in the case of reckless action a reckless tax evasion according to. § 378 AO in the room. Any person who, as the owner of a business or enterprise, intentionally or negligently violates supervisory duties aimed at preventing such misconduct commits a misdemeanor pursuant to. § 130 OWiG.

The BMF grants the aforementioned tax assistance measures for income tax, church tax, solidarity surcharge and sales tax. However, Corona-related criminal tax risks are also conceivable for other taxes. For example. a deferral for withholding taxes, which includes wage tax in particular, is not granted on the merits of the case, Sec. 222 pp. 3 and 4 AO. This has not changed as a result of the Corona crisis. Anyone who fails to declare and pay income tax is subject to accusations of tax evasion or reckless tax evasion. Any person who declares withholding taxes but fails to pay them intentionally or recklessly commits a misdemeanor pursuant to Section 380 (1). 1 AO and even if the non-payment of the tax is “corona conditional”. If necessary, a violation of the supervisory duty of the owner of the business or company may also be considered, which can be punished as a misdemeanor with severe fines.

The same applies to the remission of tax debts pursuant to Section 227 AO. This measure is also not addressed in the BMF letter of 19.03.2020. The possibility of remission continues to be governed by the general requirements of § 227 AO. Here, too, the following applies: anyone who presents false facts in order to obtain a waiver of tax debts risks becoming liable to prosecution for tax evasion or committing an administrative offense for reckless tax evasion.

3. what helps you
In all cases, when an application is filed, it must first be determined whether the conditions for claiming tax relief are met, i.e. whether there is a “direct and not insignificant impact due to Corona-related damage”. The requirements determined upon application must be fully documented and ideally integrated into an existing tax compliance management system. According to a letter of the BMF dated 23.05.2016, if such a document is available, this may be an indication which may speak against the existence of intent or recklessness. Questions of doubt must be disclosed to the authority as part of the application process.
In the case of withholding taxes, such as payroll tax, a stay of execution may be applied for, § 258 AO. If this request is complied with before the withholding tax is due, the facts of the case pursuant to § 4.1 shall not apply in the event of non-payment of the tax. § 380 AO. But here, too, care must be taken to ensure that the reasons presented for the stay of execution are valid. Otherwise, tax evasion for obtaining an unjustified tax advantage may be considered.
Anyone who discovers at a later point in time, i.e. after filing an application, that the preconditions for claiming tax assistance measures were (possibly) not met, should inform the tax authorities immediately as a precautionary measure. If necessary, this information can be designed in such a way that it also fulfills the requirements of a voluntary disclosure pursuant to §§ 3.1.1 and 4.1.1. § Section 371 or Section 378 of the German Fiscal Code (AO) is fulfilled. Criminal liability or a fine can then be waived if the legal requirements are met.

III. granting of loans and subsidies

1. requirements

Also, when applying for loans and grants, it should be noted that they are linked to “Corona-related economic difficulties” or “liquidity constraints. However, the details differ depending on the federal state and must be checked carefully when applying.

Based on a joint administrative agreement between the federal government and the states (dated March 27, 2020), the federal emergency aid requires a Corona-related “liquidity bottleneck” that must have arisen after December 31, 2019 (likewise the “Corona emergency aid” based on the Bavarian guideline (7071-W dated March 26, 2020).

According to a definition provided by the Bavarian Ministry of Economic Affairs, a liquidity shortage exists “if, as a result of the Corona pandemic, ongoing income from business operations is expected to be insufficient to pay liabilities in the three months following the filing of the application from ongoing commercial material and financial expenses (e.g., commercial rents, leases, lease payments).” This requires a twofold temporal delimitation on the part of the applicant, because on the one hand the liquidity bottleneck must not have arisen before December 31, 2019 (past-related consideration), and on the other hand a forecast is required for the three months following the application (future-related consideration).

Baden-Württemberg is targeting liquidity bottlenecks or sales slumps from March 11, 2020, as the situation here has been declared a pandemic by the WHO.

North Rhine-Westphalia bases the existence of a liquidity bottleneck (among other things) on a halving of orders or sales compared to the period prior to 01.03.2020 or the corresponding month of the previous year.

2. criminal law aspects

Criminal offenses are particularly conceivable in the event of false statements in the case of

• the application for grants, § 263, 264 StGB,
• the filing of applications or the drawing down of loans from the Kreditanstalt für Wiederaufbau (KfW), §§ 263, 265b StGB,
• the deferral of social security contributions, § 266a StGB or
• also in the form of false affirmation in lieu of an oath,
  § 156 StGB, which can also be committed negligently, § 161 StGB.

Applicants will be instructed and notified of criminal penalties following any federal or state emergency action. In the event of subsequent changes that may affect the grant or the amount of the grant, the applicant is also subject to immediate notification requirements (e.g. in Baden-Württemberg). In addition, if the information provided is incorrect or incomplete, the grant awarded must be repaid.

An exchange of information is provided for between the granting authorities and the tax authorities.

3. what helps you

In all cases, the same applies here: The information provided in the application must be true, must be carefully documented and should be integrated into a compliance system. Doubtful cases must be disclosed as part of the application process. The retention requirements (up to 10 years) must be observed.

Attention should also be paid to cases of cumulative use of public assistance. Although this is permissible in principle, overcompensation must be refunded or may lead to the elimination of the condition that exists in itself. De minimis aid that has already been used must also be included in the applications.

Last but not least, it is important to note that grants are subject to income tax and must be declared as part of the 2020 tax return.

Get through this difficult time well and safely!