Client information - KPMG Law

Client information

 Criminal Tax Law and Legal Disputes
 April 2020

Avoid penalties when getting through Corona-crisis! On criminal
(tax) law risks in connection with support measures during the
Corona crisis and how to approach them
I. Background
The Corona crisis has led to wide-reaching and unprecedented support measures at
a federal and regional level. This covers tax measures, loan and grant conditions,
and compensation for reduced working hours. To ensure aid is quick and effective,
support measures will not require additional proof of fulfilling requirements.
However, if any details submitted turn out to be false, there is the risk of a penalty.
Here we provide an overview of the criminal law and tax criminal law risks
associated with the support measures, and how you can arm yourself against them.

II. Tax support measures
In its letter of 19.03.2020, the German Ministry of Finance [Bundesministerium der
Finanzen, or BMF] outlines three tax measures to avoid undue hardship for those
negatively affected by the Coronavirus:

• Deferral of due or coming due tax payments
• Application for adjustment to advance tax payments
• Refraining from enforcement measures.

1. Eligibility
All three of these support measures have this in common: they only apply for
taxable persons who are “verifiably directly and not insignificantly affected”.
From the authorities’ point of view, “directly affected” may mean any economic

damage would have to be directly attributable to the Corona pandemic (“Corona-
induced” damage).

2. Tax criminal law aspects
According to BMF guidelines, applications for tax support measures from taxable
persons are not to be rejected if the taxable individual is unable to prove the value
of their damages in detail. The review of their conditions for deferral of payments
will not be subject to any stricter requirements either.
This relaxation of the conditions for the approval of tax support measures does not
mean that the criteria don’t have to fully be met. Despite the relaxation of the
obligation to produce proof at the point of application, it must still be anticipated
that the financial and law enforcement authorities will check eligibility in detail.
Should there be an application for tax support measures despite a lack of verifiable
eligibility, this could count as intentional tax evasion according to § 370 of the
German tax code [Abgabenordnung] (criminal offence) or gross negligent tax
evasion according to 378 AO (administrative offence). If the owner of a company or
an enterprise willfully or negligently violates the supervisory duties intended to
prevent this kind of tax avoidance, this can be sanctioned as an administrative
offence according to § 130 of the German code of administrative offences [Gesetz
über Ordnungswidrigkeiten or OWiG].
The BMF will grant the aforementioned support measures for (corporate) income
tax, church tax, solidarity surcharge and VAT. But Corona-induced tax risks may
also apply to other kinds of tax. For example, a deferral of withholding tax, including
wage tax in particular, would not be granted. This has not been affected by the
Corona crisis. The failure to declare and to pay wage tax counts as intentional tax
evasion or gross negligent tax evasion. The non-payment of declared withholding
tax such as wage tax – whether willfully or negligently – is an administrative offence
under § 380 Abs. 1 AO as well, even if the non-payment itself is “Corona-induced”.
This may also be considered a violation of the supervisory duties of the owner of a
company or an enterprise, which may be classified as an offence, incurring a
significant fine.
This also applies in the case of a waiver on tax debts under § 227 AO. This measure
was not covered in the BMF’s letter of 19.03.2020 either. The possibility of a waiver
continues to be based on the general conditions of § 227 AO. In this context, this
still applies: If a waiver on tax debts is granted based on false facts, there is a risk
of prosecution for tax avoidance or the offence of reckless tax fraud.

3. What can help you
In any application, the first thing to check is whether the conditions for claiming tax
support are fulfilled, i.e., whether a “verifiable direct and not insignificant effect due
to Corona-induced damage” exists. The reasons for eligibility must be completely
documented, and a corresponding process ideally integrated into an existing Tax
Compliance Management system. Having a Tax Compliance Management system in
place may count as evidence against willful action or negligence, according to a
letter from the BMF dated 23.05.2016. Any points of doubt should be disclosed to
the authorities during the course of application.
In the case of withholding tax, such as wage tax, it is possible to apply for
suspension of enforcement under § 258 AO. If this application is granted before the
withholding tax is due, this precludes the offence of non-payment under § 380 AO.
However, it is still just as important as in any other case to ensure that the rea-sons
stated for the suspension of enforcement are correct. Otherwise, there is the

possibility of tax evasion due to attainment of an unwarranted tax advantage.
Should it emerge at a later date, i.e. after submitting an application, that the
conditions for eligibility for tax support were not (or may not have been) met, the
financial authorities should be informed without delay. This information may be
presented in such a way as to count as a self-disclosure under § 371 or § 378 AO, as
applicable. This helps avoid a punishable offence or a fine, provided all legal
conditions are met.

III. Loans and grants

1. Conditions
When considering an application, it is important to remember that loans and grants
depend on “Corona-induced economic difficulties” or “liquidity bottlenecks”. The
exact details vary by federal state, and, as such, must be checked thoroughly before
any application.

The national emergency aid programme [Bundes-Soforthilfe], based on an
administrative agreement between the federal government and the federal states
(dated 27.03.2020), requires a Corona-induced “liquidity bottle-neck”, which must
have arisen since 31.12.2019 (this also applies for the “Corona emergency aid“
[Soforthilfe Corona] based on the Bavarian guidelines [Bayerische Richtlinie] 7071-
W, dated 26.3.2020.
As defined by the Bavarian Ministry for Economic Affairs a “liquidity bottleneck”
exists if “as a consequence of the Corona pandemic, the current incoming revenue
is not projected to cover, material and financial business expenses (e.g. rent or
lease of business premises, leasing of business vehicles) during the three months
following submission of an application”. This presents the applicant with a double-
sided time restriction: on the one hand, the “liquidity bottleneck” must have arisen
after 31.12.2019 (historical assessment); on the other hand, a prognosis is required
for the three months after the submission of an application (forecast assessment).
Baden-Württemberg recognises “liquidity bottlenecks” or declines in revenue after
11.03.2020, when the situation was officially declared a pandemic by the WHO.
North Rhine-Westphalia considers a “liquidity bottleneck” to exist if orders or
turnover are reduced by half compared to the period before 01.03.2020 or
compared to the same month of the previous year (among other criteria).

2. Criminal law aspects
Criminal offences are especially likely in the case of false declarations regarding:

  the application for grants, under § 263, 264 of the German Criminal Code
  [Strafgesetzbuch or StGB]
  the application for or attainment of loans from the Reconstruction Loan
  Corporation [Kreditanstalt für Wiederaufbauor KfW] under §§ 263, 265b StGB,
  the deferral of social security contributions under § 266a StGB
  the making of a false declaration under oath, under § 156 StGB, which can also be
  committed negligently, see § 161 StGB.

Applicants are informed and instructed on matters of criminal law relevance when
applying for all national or federal state emergency aid measures. Applicants are

also informed of the requirement to disclose without delay any subsequent changes
which may influence the approval or amount of a loan or grant, (e.g. in Baden-
Württemberg). On top of this, in the event of false or incomplete facts, any financial
aid given must be repaid. Information may be exchanged between the granting
authorities and the financial authorities.

3. What can help you
The following applies for all cases: The statements made in the course of an
application must be true, must be carefully documented, and a corresponding
process should be integrated into a Compliance System. Any doubts must be
discussed with the authorities during the course of application.
Retention requirements (up to 10 years) must be respected.
With regard to the cumulative attainment of public aid: This is generally
permissible; however, any overcompensation may not be refunded, and could
cancel out existing eligibility. Also, any de minimis aid already claimed must be
mentioned in an application.
Finally, please note these grants or loans are subject to income tax and must be
declared in 2020 tax returns.

Stay healthy and safe through this difficult time!

 Contact:
 KPMG Law

  Dr. Heiko Hoffmann                          Dr. Jochen Maier
  Partner Standortleiter Munich              Senior Manager Standortleiter Freiburg im
                                             Breisgau
      +49 89 59976061652
                                                   +49 761 76999910
       HHoffmann@kpmg-law.com
                                                   jmaier@kpmg-law.com

Arndt Rodatz                              Dr. Peter Schad
 Partner                                   Senior Manager

     040 360994 5081                           +49 89 59976061503

      arodatz@kpmg-law.com                      pschad@kpmg-law.com

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