. . Germany - the taxman cometh

[tim123]

I've been following the story with interest, but how are they finding out. Normally an accountant would only keep records of what he has been told, in other words if the client/contractor is only telling accountant one amount, yet he is earning another amount, then the accountant won't know whats going on, so how can the taxman say otherwise.

WHS.

I know some people who work through these management companies and the usual MO is that the billing is split into money that is declared locally as salary and money that is paid into an offshore account for the benefit of the consultant. This latter money is theoretically not to be touched until you leave the country (but various contrivances are used so that it can be - which is why the schemes fail).

This splitting is done by the management company staff and the local accountant is only informed of the former amount. I don't see any way that the local accountant can be implicated in any dishonest actions by the consultant/management Co in not declaring these funds.

tim

[BlasterBates]

Serious question now...
I'm in the €600+ bracket .....just how much do you get after taxes and is it really "get" or is it dormant in your Ltd unless you want to inflict the 40% equivalent on yourself.

I've done zeeeeero research into this, but my gut feeling is the gulf between freelancers and employees is far less in Germany and if you can get a good whack permy roll - say between 80 and 100K Euro with all the frills then it's not a bad proposition.

The difference between permie and contractor is the NI.

The key is no National Insurance. You can expect to keep 65 +% of your gross income as a freelance. As a permie there is a hidden 20% employers NI and employee i around 20% though a maximum of EUR 500. So this is EUR 1000 a month. The tax is about the same.

Just as in the UK although it is easy to get a contract for 500-600 EUR a day a highly paid job paying a similar amount is much harder to come by.

Really I don´t see much difference between a legit UK Ltd and a legit "Freiberufler" in Germany, in terms of take home.

I realise there´s a lot of UK schemes out there, that give you a high take home, but I don´t regard them as legit, and you can always expect the knock at midnight.

[LegendsWear7]

How do they find out ?

Easy really.

First of all they are not mugs and spend their lives examining other peoples tax situation, whereas for a contractor: it is low on the list of knowledge-sets.

They write to companies that use plenty of contractors: e.g. Telcos and request a list of every contractor and agency contract.

Now they have your name, 'position' and start to get an indication of rate. If you aren't registered or paying very little tax: that's already going to get them excited.

But what they actually do is write to the Inland Revenue (or wherever the agency is) and explain the situation and ask the IR to contact the agency to provide copies of contracts for those contractors.

Now they know what you receive gross after the agency and they know what you declare.

They crack hard on a few people and start to see a common pattern. Same management companies, same accountants. MCs won't speak to the Finanzamt unless compelled. But the local accountant must do. Now they know who the potentially dodgy accountants may be. And go through their records of their clients line by line. As more people confess (to reduce / avoid severe penalties) they are building a picture of the whole operation step by step. And this make it easier to ensnare more people.

You can fill out the gaps yourself.

[BlasterBates]

It strikes me that any IT professional, (and your profession is on the tax form) earning EUR 30000 is going to make the tax man suspicious. Particularly if it's with some agency. The average salary is over EUR 70,000, 30,000 isn't even a starting salary.

[Pian Eough]

My Two Cents

As this thread goes on, the panic increases. Remember that the more worrying posts on this thread may have been written by Mr. H himself to freak you out. I have never heard of anyone contracting in Germany who got arrested, and I have plenty of contacts. If I were you I would sit back, relax and enjoy the Christmas. Extradition? We are small fish, there were hundreds of German contractors who had been at the splitting game for years when I was there, surely they would be chased first. And there are worse crimes than this.

[LonelyRider]

I have now consulted a real professional. He is a foreigner, who is qualified tax accountant in Germany and has handled numerous cases of tax corrections of foreigners. Apparently they are relatively common cases amongst contractors and expats.

Firstly, he said that the taxation of past 4-5 years can be corrected by so called correction process, which is different from self accusation and has no risk of penalty. One should never mention the word self-accusation in those corrections as they are supposed to be innocent (ie one has not declared income because he was unaware of the regulations).

He also revealed that should the tax office start to investigate one single person, the typical case would start by them simply sending a letter stating that "the tax office is aware that you have undeclared income for the years XX. Please declare your total income and pay the outstanding taxes". At this point there is no criminal investigation, but in this case one must declare the income and pay it relatively soon. If not, then the case might go further. The tax accountant told that typically a client comes to him with this letter and then corrections are filed. For the investigation to start with raids or custody, there must be also something else than just unpaid taxes being investigated or the sums must be really huge.

Based on this information, those contractors, who have left Germany, probably do not need to file any corrections. It is sufficent to wait for the possible letter from the tax authorities and file them then. If they hear nothing within about 5 years after leaving the country, they are probably never going to hear from the German tax office. Even those, who are still in Germany can just file the corrections after they have been contacted by the tax authorities. The matter is not that urgent as Mr H claims ie one is not faced by a direct criminal investigations in most cases. The professional I talked to was actually appalled by the manner Mr H has been scaring his clients by outright false information.

Of course, if one is among those contractors, who have some undeclared income in Germany from the past 5-6 years, one should probably not waste all one's savings, as if there is a request from the tax office, then one should be able to pay the outstanding taxes relatively quickly.

[LegendsWear7]

I have spoken with more people and have opted to go fully legit. Have to go to UK to locate all old contracts and every part of the paper trail. Will be paying copious amounts of my hard earned for dolites and bludgers to live off. And I'll never ever know if it is for 'nothing'. Paying for peace of mind as I've not been sleeping / thinking clearly since this occurred.


LonelyRider: I very much appreciate your comments. I have heard something comparable from 1 or 2 sources but not from others. I needed clarification on whether a letter from H is 'last chance saloon' or there is a second chance with an initial letter from Finanzamt. Of course I prefer the latter. If I was approached gently direct by Finanzamt and give the chance to pay then, without special penalties: then great. We would all be able to ignore letters from accountants (H is not the only one) and see if the 'real deal' comes through the post.

The more 'professional' the person, the more they recommend: go clean asap. Professionals may interpret the laws differently for different reasons. However the highly qualified ones I contacted (who admittedly may be incorrect) told me that time is of the essence. To pay before Finanzamt commences a personal investigation. Once that happens: self-declaration is too late. This is what I have been told. I don't read German so I can't locate a reference in any law, much as I would prefer to.

I even called people who don't have a vested interest in me perhaps becoming a customer of theirs (friends of friends). Same message. UK contractor was arrested in Munich recently and had to pay 200K bail. They do this as the risk of flight is so high.

One quote was 2500 EUR to clean up the taxes. This from a very highly qualified person indeed, combined lawyer, tax adviser, accountant. H wouldn't make an estimate. One of the reasons I've never been happy with their 'service'.

When people who really understand the mechanics explain to me how easy it is to catch people: I don't want to feel uncomfortable every time the door knocks or I'm queuing at airport migration.

The mood in Germany has moved to condemning and more aggressively pursuing tax dodgers. Possibly orchestrated politically or not.

These are Germans. German tax people. Heard a story (no supporting evidence) that the Finanzamt recruited former Stasi officers to be tax investigators. And they will not give up at the very first hurdle.

What I don't understand: how come it was taken till 2007/8/9 for a crackdown ? Its not too hard to identify management companies and contractors being paid small amounts from exotic locations.
So on the other side I know plenty of dodgy activity certainly slips through.

If there is a lesson: if you plan on doing anything like this don't use a common route.

If you have been away for say 5 years or more then from what I've distilled: you are most likely fine, especially if outside Germany. Less than: a lottery, guesswork. Are you a gambler? In the game we have no idea of the odds.

One well-known (in expat contractor circles) management company has withdrawn from the German market this year so that tells me something.

[BlasterBates]

Yes I agree with everyone above getting independent legal representation if you've been contacted by Mr H, sounds like a good idea as Mr H is already ruined and will be trying to do all he can to save, what is left of his skin.

I'm quite appalled why anyone would use this scam, I'm surprised that German contractors were doing this as most I knew just did the normal Freiberufler.

Oh well look on the positive side once, you've paid that extra into the Sozialversicherung you'll be entitled to a generous pension.

[tim123]

Yes I agree with everyone above getting independent legal representation if you've been contacted by Mr H, sounds like a good idea as Mr H is already ruined and will be trying to do all he can to save, what is left of his skin.

I'm quite appalled why anyone would use this scam, I'm surprised that German contractors were doing this as most I knew just did the normal Freiberufler.

Oh well look on the positive side once, you've paid that extra into the Sozialversicherung you'll be entitled to a generous pension.

Almost everybody I worked with used it. Almost every agency that I dealt with suggested that you should use it. They all called you an idiiot for not wanting to. I told them that I preferred to sleep soundly at night and that this was worth 10K a year

tim

[poppy01]

Almost everybody I worked with used it. Almost every agency that I dealt with suggested that you should use it. They all called you an idiiot for not wanting to. I told them that I preferred to sleep soundly at night and that this was worth 10K a year

tim

I was told the same
. contacted themn yesterday (2years since I left) and they say they are not being investigated and would defend it to the hilt. key thing is not to draw any offshore funds til you have deregistered