Germany stiffens VAT penalties

Tue 6th May 2014

The German Finance Minister agreed this week to impose tighter penalties where voluntary disclosure is involved.

When companies detect errors in their German VAT returns, the will generally receive a much more lenient fines and interest penalties. Often, for relatively small amounts, and fine will be waived. The current German VAT penalty regime is as follows:

  • A late return incurs a fine of 10% of the VAT due up to €25,000 at full discretion of the tax office
  • For unpaid VAT due, the monthly interest charge is 1%. There is then also a further interest charge on the penalty of 0.5% per month.

However, in an effort to increase VAT receipts and curb an over reliance on limited penalty risks, the federal states agreed to tighten the consequences where companies voluntarily disclose such delays or errors. This includes a requirement to voluntarily disclose any issues up to 10 years after the event instead of the current 5 years.

The maximum fine cap will be extended beyond the current €25,000, and there will be a potential further 10% charge of the tax due beyond this limit. This rises to 15% above €100,000, and then 20% above €1m