What is reckless tax evasion and when does it come into consideration?
Reckless tax evasion is a tax offence. It occurs when someone without intent, but with gross negligence, provides false or incomplete information to the tax office, thereby evading taxes.
Gross negligence means that the error could and should have been recognised if due care had been taken.
Examples of reckless tax evasion
- Incomplete receipts: A self-employed craftsman forgets to record several cash payments in his net income statement. He does not keep proper cash records and does not check his documents carefully – this can be considered negligent.
- Lack of knowledge about tax obligations: An influencer receives advertising income from abroad but does not report it because she believes it is VAT exempt. Her lack of knowledge does not protect her – in the absence of advice, this can be classified as reckless behaviour.
- Incorrect advance VAT return: A taxable person accidentally transfers incorrect figures from his accounting software to the advance VAT return. Although he had the opportunity to check, he failed to do so – this can also be considered reckless.
- Incomplete information when renting out property: A private individual rents out a holiday home and only declares part of the rental income in their tax return. They rely on out of date information from the internet – this can be considered gross negligence.
- Lack of advice on complex facts: A limited liability company managing director makes a hidden profit distribution without seeking VAT advice. The incorrect tax treatment could have been avoided by seeking expert advice – here too, recklessness may be involved.
Practical experience: The line between (conditional) intent and reckless behaviour is often a narrow ridge. In practice, we often see law enforcement agencies initiate investigative proceedings into tax evasion under Section 370 of the German Fiscal Code (AO) without specifically addressing the elements of (conditional) intent and recklessness.
What is the penalty for reckless tax evasion under Section 378 of the German Fiscal Code (AO)?
Reckless tax evasion is punishable by a fine of up to EUR 50,000 (sec. 378 para. 2 German Fiscal Code). The exact amount depends on the individual case – in particular on:
- the amount of tax evaded,
- the degree of negligence,
- behaviour during the proceedings (e.g. cooperation, additional payment).
Note: Anyone who corrects the error in good time and pays the outstanding tax may, under certain circumstances, remain punishment-free (sec. 378 para. 3 AO).
How long is the criminal statute of limitations for reckless tax evasion?
The criminal statute of limitations for reckless tax evasion is governed by Section 384 (AO) and is five years.
Tax implications of reckless tax evasion
Extended assessment period: In the event of reckless tax evasion, the assessment period is extended to five years in accordance with sec. 169 para. 2 sentence 2 of the German Fiscal Code. This extended period applies only to the evaded taxes and begins at the end of the calendar year in which the tax arose. In addition, the assessment period does not end before the statute of limitations for prosecuting the tax offence has expired (sec. 171 para. 7 AO).
The reduced taxes must be paid retrospectively, insofar as they can still be assessed. Unlike tax evasion, reckless tax reduction does not trigger any interest liability under Section 235 AO.
Distinction from tax evasion?
If incorrect information is deliberately provided to the tax office, this may quickly constitute the criminal offence of tax evasion under Section 370 of the German Fiscal Code (AO). Find out here what characteristics, penalties and options for voluntary disclosure exempt from punishment exist:
Tax evasion pursuant to sec. 370 of the German Fiscal Code (AO)
Strafbefreienden Selbstanzeige nach § 371 AO
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