Tax Office Demands Proof of Source of Funds From You?
Unlike banks and exchanges, the tax office is not primarily concerned with certain money laundering regulations with regard to proof of source of funds. Instead, it is concerned with dealing with issues relevant to tax law. This probably does not seem very important to you at first. However, the basis on which the tax office demands proof from you is crucial for your further action. The legal basis, in addition to other legal provisions, is in particular § 93 of the German Fiscal Code (“Abgabenordnung“, AO).
Do I Have to Act if Tax Offices Demand Proof of Source of Funds?
You do not have to. But the question arises as to what happens if you do not provide any information at all. Pursuant to § 93 AO, tax offices are allowed to ask parties and other persons for information on facts relevant to tax law.
There is therefore a legal basis for the tax office to request proof of source of the funds from the taxable person and other persons.
You yourself must therefore provide information to the extent that the tax office’s request is necessary. “Just like that”, the tax office can therefore under no circumstances demand proof of the source of the funds. Only if the question about the source of the funds is necessary for the clarification of the tax-relevant facts, it is also legitimate.
This could be the following situation, for example.
Example: You did not file a tax return until now because your taxable income was below the tax exempt amount. Suddenly, you receive a higher amount of money in your account. The tax office may therefore ask you where these funds came from. Because this is necessary to determine your possible tax liability positively or negatively.
By the way, “other persons” according to § 93 AO means in particular banks. The tax offices can also ask the banks if information from the person concerned is not useful or if no information is provided. If the bank has your proof of origin of funds from a previous correspondence with you, it could be that the tax office requests this data.
If the Tax Office Demands Proof of Origin of Funds, This May Lead to Further Questions!
Providing proof of the source of the financial resources in question with you does not necessarily settle the matter for the tax office.
If it turns out that your funds should have been reported on your tax return, you could face a fine. If the proof of source of funds shows a tax debt that you did not properly report, you could even be charged with tax evasion.
You can assume that tax offices will check very closely in the case of larger movements of assets. On the one hand, the tax office will ask you as the person concerned for proof of the source of the funds. On the other hand, they will probably also contact your bank and other persons who might be able to comment on the facts of the case. However, you will not learn anything about these “investigations”.
Read Carefully the Letter With Which the Tax Office Requests a Proof of Source of Wealth!
A request for information from the tax office concerning the proof of source of wealth is an official letter which must be duly delivered to you. According to § 93 AO, the tax office may even request a personal meeting with you if this is necessary to clarify the facts.
If you have received a letter, we recommend that you take the time to read the request properly. You do not need to provide the tax office with any information that the tax office does not request from you in the letter. Therefore, the only information you should provide is what is requested. Further extensive explanations are usually not advantageous for you.
If the tax office invites you to a personal on-site meeting, we think you should get support for this. In an on-site meeting, you may provide information that could have serious consequences for you. You were not prepared for this.
What Should I Do if I Admit to Having Concealed Important Cash Receipts by Providing Proof of the Source of the Funds?
Depending on the specific individual case, this could be a case of breach of the reporting obligation or even tax evasion.
The decisive factor will be whether the proof of source of funds is used to report a taxable profit or a taxable inflow of funds for which the report should have been filed in the tax return long ago.
In cases of tax evasion, think about self-disclosure. Self-disclosure sometimes has the advantage of at least mitigating punishment if there is a conviction for tax evasion.
In complicated cases with the tax office, which requires proof of source of financial resources, we strongly recommend involving a law firm experienced in this area.
Your lawyer will
- check to what extent the proof of source of funds must be provided to the tax office at all,
- solve tax evasion cases for you in the best possible way,
- determine whether the tax office has possibly exceeded its own competences by
- inquiring “other persons” in accordance with $ 93 AO,
- whether tax-reducing measures can be taken,
- conduct the necessary correspondence with the tax office and attend the on-site meetings in order to guide you through the process with legal certainty.