What to do when the tax inspector calls?
How to handle Tax Office searches
WirtschaftsWoche online 07.08.2019 at 18:56:11
Patricia Lederer works as a specialist tax lawyer in Frankfurt. Time and again, she has experienced how quickly someone who would never have expected it ends up on the tax inspector’s radar. “Small business owners are often under general suspicion these days, but also restaurants. Basically, anyone who largely works on a cash basis”, says Lederer. While many large companies train their employees for possible searches, private individuals, smaller companies, and freelancers are usually overwhelmed when the Tax Office comes calling. “The first response for most people is to just want to throw the tax inspectors out. That’s neither possible nor sensible”, says Lederer.
It’s all about damage limitation. Damage doesn’t just mean the punishment to be feared for an actual tax evasion. Damage can also arise even if the allegations ultimately prove groundless. Often an official search in itself is enough to damage a reputation. Above all, however, the search unleashes disruption and chaos, for example when the investigators take computers and documents with them.
In order to keep such events out of the public eye as much as possible, “companies should first ensure that tax inspectors leave public areas, such as anywhere near the reception area”, says Alexander Littich, criminal tax law specialist at Ecovis in Landshut. “If you get inspected, I advise you to be polite and offer to continue talking in a meeting room”. It also doesn’t hurt to offer a cup of coffee. The investigators won’t accept anything more, anyway, to underline their independence.
However, it’s not really possible to control whether and how quickly the search is made public. “A receptionist who’s overwhelmed by it all could be sitting there and texting her family that the office is being searched. The news will quickly spread like wildfire”, says Littich. In this emotionally upsetting situation, it helps to call in a consultant right away who can offer an outside perspective, preferable both an accountant and a lawyer. They’re not only familiar with such situations, but can also reassure you. Also, when the accountant shows up, that can buy some time, although the inspectors can actually get started right away. “But most of them will wait”, says Littich’s colleague Janika Sievert, also a criminal tax specialist at Ecovis in Landshut. The investigators would certainly be fine waiting half an hour.
Keep calm, say nothing, collect information
Whether with or without professional support, the next step is to find out as much as possible about the allegations and the cause for the inspection. The search warrant might provide some insight and perhaps even reveal potential for a defence: “Is the name right? Is the address correct? If not, then the warrant is not enforceable”, says Sievert. If the investigators are only interested in a particular account, you can certainly point to where the relevant files are kept. In fact, the less inspectors have to search and the less that they eventually take with them, the lower the risk of any accidental discoveries. Often, companies that are being investigated claim that they are cooperating fully with the investigators. However, in practice, this usually has its limits. If the investigators, for example, are expressly only interested in payroll accounting, a company isn’t going to hand over their financial accounts, too. Documents listed in the search warrant can be taken by the investigators. “However, if the documents listed are at your accountant’s office, for example, we advise giving them permission to collect them there’, says Sievert.
The right to remain silent: everyone knows that from countless TV shows. If you listen to the tax experts, you might get the impression that TV shows are good training. “It’s best if you don’t say anything. A lot of people shoot their mouths off”, says Littich. They try to explain things and justify their actions. But that’s a big risk. “Everything that’s said during a search can be used against you.”
Record the search and go to the tax office
Specialist tax lawyer Lederer has the impression that investigators and auditors are “trained to get people talking”. Sometimes they even try to provoke. “They’ll rummage through children’s toys, for example.” People react emotionally to this and became angry. Any impulsive reaction, from an insult to actual fisticuffs, can do great harm. She advises clients to keep their own log of what happens during the search. “This way, you regain some of the control. Who is here? How many people are there? What are they doing?” The inspectors are obliged to identify themselves. You have the right to write down their names.
It would be best, though, if there were no search in the first place. Companies, for example, often become aware of situations early on when they’re preparing their annual financial statements or during an audit, Sievert explains. “It’s best if you check whether turning yourself in or making a correction is possible”. And if there is a search, that does not necessarily create a case, even if a mistake has actually been made or taxes have been evaded. You might be able to come to an agreement with the tax office, what the average person would call a “plea deal”. Often, the evidence for possible tax evasion remains rather thin.
All rights reserved: (c) Handelsblatt GmbH
© GBI-Genios Deutsche Wirtschaftsdatenbank GmbH