Consequences in case of discovery of undeclared investment income through domestic tax authorities
If domestic tax authorities discover that a taxpayer has undeclared investment income and no voluntary disclosure has been submitted, criminal tax proceedings are initiated with punishments including fines and up to imprisonment. Tax fraud of more than EUR 500,000.00 may lead to imprisonment for up to ten years.
Consequences when a voluntary disclosure has previously been submitted to domestic tax authorities
A successful voluntary disclosure guarantees full immunity from prosecution for tax evasion. In order to be successful, the domestic taxpayer has to declare all undeclared taxable income for the last ten years. He also has to pay the evaded taxes together with interest on arrears. If the voluntary disclosure is submitted on the occasion of a secondary review or a tax audit a penalty surcharge of 5% to 30% applies, depending on the amount of tax evaded.
It must be mentioned that, at present, there is no inheritance or gift tax in Austria. However, gifts and donations of more than EUR 15,000.00 (EUR 50,000.00 between close relatives) have to be notified (this includes cash, capital claims, shares in corporations and partnerships, establishments and operational units that generate operating income, movable physical assets, etc.). The reporting obligations apply to both donor and recipient, if one of the parties, either donor or recipient, has their primary residence or habitual residence in Austria at the time of donation. The obligation also applies to individuals with an established secondary residence in Austria. If a report was wilfully not filed, this breach of financial regulations is punishable by a fine of up to 10% of the donation’s fair value.
Conditions for a successful voluntary disclosure
- A voluntary disclosure leads to an exemption from punishment if all of the following requirements are met:
- Disclosure of the offence.
- Submission of the voluntary disclosure to the competent tax or duty office.
- The offence has not been discovered at the time of committing the tax offence.
- Disclosure of the circumstances relevant for establishing evasion or underpayment of taxes if the misconduct was connected with an underpayment.
- Payment of the tax evaded in accordance with applicable tax regulations.
- Timeliness, i.e. no acts of prosecution have been carried out yet, the offence has not yet been discovered or at least the offender does not know of any such discovery, etc. The requirement of timeliness is not fulfilled if [an incomplete] voluntary disclosure to the tax authorities has already been made concerning the same tax offence.
- The person on whose behalf the voluntary report is made is clearly identified.
Will the Panama Papers accelerate the process of voluntary disclosure?
The publication of the Panama papers resulted in a 2% increase in voluntary tax disclosures in Austria in 2016 compared to the year before. According to the OECD, Panama is the 105th jurisdiction to participate in the Exchange of Information Convention. The Convention provides for all forms of administrative assistance in tax matters: exchange of information on request, spontaneous exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection. The first exchange of information with Panama is scheduled to begin in 2018 for data filed after January 1st, 2017. In Panama’s case, the identities of the beneficial owners of offshore companies will be part of the data set to be exchanged between participating countries. In order to reach full immunity from prosecution for tax evasion, an Austrian shareholder/beneficial owner of a profitable Panamanian offshore company must submit a voluntary disclosure since, when assessing taxes due, Austrian tax authorities “look through” such companies as though they did not exist.
