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Tax liability according to § 10b para. 4 EStG

December 3, 2009 | 50,00 EUR | answered by Oliver Burchardt

Good day, this question does not need to be answered within 1 hour, there is time.

The above regulation states: "Anyone who causes donations not to be used for tax-privileged purposes due to gross negligence is liable for the tax..." (The following sentence specifies 30% for income tax).
In principle, it is completely logical and correct: The donor receives a donation receipt from the non-profit recipient of donations and saves an average of 30% in income tax. If the money is not used for tax-privileged purposes by the recipient of the donation, then the recipient (not the donor) must pay a flat rate of 30% in back taxes. It is completely clear, it can't really be any other way.

My question: Is this regulation a kind of 'punishment' for the recipient of the donation or is it a kind of 'basis for assessment'?

The case is as follows: Let's take a non-profit organization A that is also eligible for tax benefits. This organization has a non-profit economic sector in addition to the non-profit sector, but under the same tax number, not somehow outsourced. Let's assume the organization subsidizes the economic operation with approximately 50,000 - 80,000 euros per year, but knowingly hides this by intentionally distorted allocations in various general costs, so that the tax authorities never notice. In fact, for the tax authorities in the financial statements, the subsidy, and therefore the misuse of funds, is not visible because it happens at the internal accounting level that the tax authorities do not see. This way, the organization (intentionally) avoids back taxes according to the quoted regulation, that's clear.

If it is a kind of 'punishment', then it is still somewhat 'legal', because nobody has to accuse themselves of a penalty. However, if it is a kind of 'assessment basis', then it is no longer legal, because then the tax authorities are knowingly and intentionally withheld a basis necessary for tax assessment, and one would inevitably be quickly involved in § 370 or even 378 AO.
So the question is: Is it allowed to manipulate the accounting in such a way that the misuse of funds is disguised in the financial statements, or is it not allowed? If it is not allowed, which regulation is being violated? (A brief indication of the regulation(s) is sufficient).

It is assumed that this is not an isolated incident but a continuous practice over several years, and that the amount involved is approximately 50,000 to 80,000 euros per year. The whole thing is a typical non-profit organization of considerable size, with an annual total turnover of approximately 1,500,000. It is not a problem with the accounting system, as there are 6 different business areas that theoretically separate and represent everything accurately. In fact, there is intentional manipulation, where too little is allocated to the non-profit sub-sections in the general costs, and instead too much is

Oliver Burchardt

Dear inquirer,

Thank you for your question, which I am happy to answer as part of an initial consultation.

Please note that the tax assessment is based on the information provided. Changes or additions to information may affect the tax assessment.

With that said, I will answer your question as follows:

First of all, any "cheating" in accounting is of course prohibited. This already arises from the (though not codified, but still valid) principles of proper accounting.

Furthermore, if it is used to maintain the requirements for tax exemption, in my opinion, the conditions for tax evasion under § 370 of the Tax Code are met. In this regard, I would like to point out that § 370 of the Tax Code is a criminal provision, while § 378 is only an administrative offense. The legal consequences of § 370 are much more severe, as prison sentences can even be imposed.

In addition to the legal representatives of the association, those who carry out the accounting may also be criminally liable if they are aware of tax misconduct.

In addition to the criminal consequences under § 370 of the Tax Code, the persons involved may also face liability consequences under § 71 of the Tax Code. According to this provision, individuals involved in tax evasion are personally liable for the taxes evaded.

The provision in § 10b para. 4 of the Income Tax Act is completely independent, as it only establishes the liability of the association for the lost tax. This provision is not punitive, but only serves to secure tax revenues.

I strongly recommend discussing the situation with a colleague on site and especially considering the possibility of a voluntary disclosure under § 371 of the Tax Code. While this may result in tax payments for the association and possibly the legal representatives based on liability grounds, criminal liability is lifted.

I hope that my explanations have provided you with an initial overview of the situation.

Sincerely,

Oliver Burchardt
Certified Public Accountant
Tax Advisor