Tax Compliance Management Systems – Compulsory or optional?

 Tax compliance reduces liability and sanction risks.

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Tax-Compliance-Management-Systeme - Pflicht oder Kür?, Insight von Prof. Dr. Peter Fissenewert, Rechtsanwalt der Kanzlei Buse Heberer Fromm

Compliance management systems (CMS) – hardly a day goes by without being reported on their necessity. Latest buzzword: tax compliance. What is behind all this? Does tax compliance make sense? What are the benefits of tax compliance?

Compliance and tax practice

German tax law is complicated and is considered one of the most difficult worldwide. Now a circular of the Federal Ministry of Finance is also bringing CMS into the focus of tax practice. The application decree can be found here.

The complexity of tax law has increased massively. Companies have to fulfil a growing number of new and extensive obligations of transfer, recording, notification and proof. Violations can result in severe penalties. Managers are increasingly coming into the focus of prosecution authorities and quickly become suspected of tax evasion.

According to § 69 of the German Fiscal Code (Abgabenordnung; AO), the legal representatives of a company, i.e. its managing directors and board members, are liable for intentionally or negligently reduced taxes – in plain language for tax evasion.

The penalties and fines are high and often threaten the very existence of the company. However, if management corrects the error in a timely manner, liability can be effectively avoided.

Intention, recklessness and carelessness

This is a question that arises time and again when it comes to compliance issues: What is the difference between intent and recklessness or even mere carelessness?

The Federal Ministry of Finance clearly states its position on this question in a circular. At the same time, the Ministry formulates the requirement to set up a tax CMS.

To begin, it can be read that the amount of an additional tax payment resulting from an entitlement alone cannot automatically be used as an indication of a tax offence. But section 2.6 of the Federal Ministry of Finance circular on § 153 AO then states that
“If the taxpayer has established an internal control system for the fulfilment of tax obligations, this may be an indication that there is no intention or recklessness. However, this does not exempt us from examining the individual case in question.” [TN: unofficial translation]

In plain terms: A company simply has better cards with a compliance management system in the area of taxes (i.e. tax compliance).

Note for practice

There is still no statutory requirement to implement a tax CMS. However, in order to minimize liability risks, the information in the Federal Ministry of Finance circular should be taken seriously. Company management should take action and set up a tax CMS.

The only difference between implementing a tax CMS and implementing an integrated corporate CMS is that tax CMS is geared solely to tax practice. It is sufficient for tax questions. However, if you are already dealing with the basic issues of CMS, it makes sense to equip the entire company with a CMS. This not only reduces liability risks in the area of tax, but also leads to a completely new corporate culture as well as competitive and image advantages.

Our services

We offer advice and implementation assistance in the development of instruments to avoid and minimise risks. These range from the identification of fraud and compliance risks through the design and implementation of comprehensive compliance management systems to the review of your already established systems. Current national and international developments, laws and conventions are immediately taken into account by us, so that a maximum protection of the company is guaranteed.