Tax evasion

What it means

Tax evasion is a criminal offence committed by anyone who intentionally reduces tax, contributions or another compulsory levy on a significant scale, for example by concealing income, claiming fictitious expenses or wrongly deducting VAT. It requires intent and a loss above a threshold set by the Criminal Code.

The Criminal Code also covers related offences: failing to pay over tax and contributions that were withheld; failing to pay tax that was declared; and tax fraud through wrongly claiming excess VAT deductions or tax refunds.

Tax evasion must be distinguished from legitimate tax planning and from abuse of law under the general anti-abuse rule. Tax planning uses what the law allows; abuse leads to additional tax; evasion is a crime.

How it works in practice

Our job is to warn clients in advance when they are considering something that could be seen as tax evasion. Typical examples are unrecorded sales, fictitious invoices from acquaintances, paying wages off the books, and private expenses booked as business costs.

If a client discovers an error in past periods, we correct it with a supplementary tax return before an audit begins. Voluntary disclosure and payment reduce penalties, and under certain conditions the Criminal Code allows criminal liability to lapse.

If suspicion of a criminal offence arises during a tax audit, we advise the client to bring in a lawyer immediately. The tax office is obliged to report facts suggesting a criminal offence to the law enforcement authorities.

What to watch out for

Not only the director but also the company itself can be criminally liable for tax evasion. Penalties include imprisonment, fines, disqualification and confiscation of property, and the consequences for the company can be ruinous.

In VAT carousel fraud investigations, companies that did not know about the fraud but could and should have known also get drawn in. Vetting suppliers, market prices and a real flow of goods are therefore also protection against prosecution.