16 Pages Posted: 26 Aug 2011 Last revised: 27 Jul 2012
Date Written: August 26, 2011
Recent developments in German VAT compliance, notably (a) the imposition of criminal penalties for failing to immediately amend a preliminary return that is known to be in error [Bundesgerichtshof decision of March 17, 2009, No. BGH 1 StR 342/08], when considered in tandem with (b) amendments to the voluntary disclosure rules, Gesetz zur Vebesserung der Bekämpfung von Geldwäsche und Steuerhinterziehung, it is clear that the German VAT compliance landscape has changed dramatically in the past year.
Taken as a whole, the German rules strongly encourage internal audits, self-reviews, and immediate self-disclosures of errors in previously filed returns and taxes paid.
This paper compares two similar compliance regimes in two similar consumption taxes – preliminary VAT returns in Germany and estimated retail sales tax returns in the US States. Both regimes have the same concern – the tax administration wants to encourage taxpayers to make timely and accurate estimated payments of a tax that is not yet fully due.
It is clear that German enforcement is far more stringent than the American. For a tax manager steeped in the retail sales tax, the German approach is difficult to fathom and its development nearly impossible to anticipate – and herein lies the pitfall for American tax managers.
German/American differences in the approach to filing and payment errors have an effect on how taxpayers interact with tax authorities. Where the German system fosters a “correction required, if necessary” attitude, the American system fosters a “catch me, if you can” attitude. The “tax intuition” of an American tax manager to the discovery of an unintended error is to wait for the tax authorities to assess applicable penalties and interest. The German expectation is that the tax manager will immediately make needed corrections and notify the tax authorities of the errors, and if he does not then criminal penalties can be applied.
The German approach to compliance is making automated third-party compliance approaches, like those of the certified service provider (CSP) under the Streamlined Sales and Use Tax Agreement (SSUTA), a very attractive option.
Keywords: VAT, Retail sales tax, Bundesgerichtshof decision No. BGH 1 StR 342/08, Gesetz zur Vebesserung der Bekampfung von Geldwasche und Steuerhinterziehung, Voluntary disclosure, German VAT, Preliminary return, Estimated payment, Missing tader fraud, MTIC
JEL Classification: K14, K33, K34
Suggested Citation: Suggested Citation
Ainsworth, Richard Thompson, German VAT Compliance - Moving One Step Closer to Automated Third-Party Solutions (August 26, 2011). 64 Tax Notes International 497 (November 14, 2011); Boston Univ. School of Law, Law and Economics Research Paper No. 11-37. Available at SSRN: https://ssrn.com/abstract=1917349 or http://dx.doi.org/10.2139/ssrn.1917349