Farewell to Voluntary Self-Disclosure with Immunity from Prosecution? Why a Tax Compliance Management System Is Becoming Indispensable

For more than one hundred years, German tax law has provided a route back to tax compliance: voluntary self-disclosure with immunity from prosecution.

As early as 1919, voluntary self-disclosure was regulated in Section 374 of the Reich Tax Code. Today, it is still set out in Section 371 of the German Fiscal Code (Abgabenordnung – AO). Under this provision, a taxpayer remains exempt from prosecution if incorrect or incomplete information submitted to the tax authorities is fully corrected and the evaded taxes, including interest and, for higher amounts, surcharges pursuant to Section 398a AO, are subsequently paid.

This long-established legal instrument, which was significantly tightened most recently in 2011 and 2015, may now be approaching its end: with the “Action Plan against Tax and Financial Crime” presented in July 2026, Federal Minister of Finance Lars Klingbeil and Federal Minister of Justice Stefanie Hubig announced plans to abolish the immunity-from-prosecution effect of voluntary self-disclosure.

For companies and their managing directors, this marks a turning point and makes one topic unavoidable that has often been regarded as an optional best-practice measure: the Tax Compliance Management System (Tax CMS).

What the German Federal Government is planning

The action plan combines a number of stricter measures. Its core element is the abolition of voluntary self-disclosure with immunity from prosecution. Instead of immunity from prosecution, at least above thresholds yet to be defined, only mitigation of punishment is to apply, comparable to the treatment of a confession under general criminal law.

In addition, particularly serious cases of tax evasion are to be upgraded to the status of a felony. The plans provide for a minimum custodial sentence of one year and prison sentences of up to fifteen years in cases of organised tax crime. Offences classified as felonies could neither be dealt with by penal order nor discontinued pursuant to Sections 153 or 153a of the German Code of Criminal Procedure.

This is to be accompanied by significantly increased corporate fines of up to EUR 40 million. Alongside the stricter criminal and administrative fine provisions, the control and investigative tools available to the tax authorities are also to be expanded. In particular, the following measures are planned:

• an AI-supported data analytics centre for the automated evaluation of tax-relevant data,
• a joint centre against tax and financial crime at customs,
• extended retention periods of up to fifteen years,
• a mandatory cash register requirement for cash-intensive sectors such as hospitality, retail and hairdressing.

No draft legislation is available yet. The advisory community, including the German Bar Association, has voiced clear criticism. Since a significant proportion of criminal tax proceedings are currently resolved by way of voluntary self-disclosures, removing the incentive for voluntary disclosure could even result in lower tax revenues.

Nevertheless, the political direction is clear. Implementation within the current legislative period appears possible. There is no legitimate expectation that the current legal framework will remain unchanged.

Why managing directors are particularly affected

Anyone who associates tax evasion solely with undeclared offshore accounts fails to reflect business reality. In companies, criminal tax law risks often arise not from criminal intent, but from error-prone high-volume processes.

A classic example is VAT. It involves high transaction volumes, and even minor system-related errors can trigger substantial additional tax payments. Due to its complexity, errors may arise not only in systems but also in legal assessments. They are therefore not necessarily intentional. Once identified, it must remain possible to correct them without punishment.

This does not apply to VAT alone. Comparable risks exist in relation to wage tax, transfer pricing or permanent establishments. Systematic errors can accumulate over several years into six- or seven-figure amounts.

Section 153 AO is particularly sensitive. If a managing director subsequently discovers that a tax return was incorrect, this must be reported and corrected without undue delay. The boundary between a non-punishable correction under Section 153 AO and voluntary self-disclosure under Section 371 AO is fluid. Conditional intent is already sufficient to support an allegation of tax evasion. Until now, this uncertainty could often be mitigated by structuring corrections on a precautionary basis so that they also met the requirements for an effective voluntary self-disclosure.

If the immunity-from-prosecution effect is removed, managing directors will face a considerable dilemma: remaining silent breaches the correction obligation and may give rise to separate criminal liability. Disclosure, on the other hand, places the facts directly before the tax authorities, in future possibly without guaranteed immunity from prosecution.

In addition, there are personal liability risks under Sections 34 and 69 AO, fines for breaches of supervisory duties under Section 130 of the German Administrative Offences Act, and possible professional consequences up to and including loss of suitability to act as managing director.

The Tax CMS as a key protection tool

In this environment, the focus shifts from subsequent remediation to preventive protection. This is precisely where a Tax CMS comes into play. The tax authorities themselves have paved the way for this: according to the application decree on Section 153 AO, an internal control system designed to ensure compliance with tax obligations may constitute an indication against intent or gross negligence.

With IDW Practice Note 1/2016 on the design and audit of a Tax CMS based on IDW Auditing Standard 980, there is also a recognised benchmark against which the appropriateness and effectiveness of such a system can be assessed.

The legislator now also recognises functioning tax control systems outside criminal law. Under Section 38 of the Introductory Act to the German Fiscal Code, the tax authorities have, since 2023, been testing simplifications in the type and scope of tax audits for companies whose tax control system has been assessed as effective.

However, the Tax CMS becomes truly significant in a possible scenario without voluntary self-disclosure with immunity from prosecution. If a tax error is discovered, the question of whether intent exists determines whether a non-punishable correction under Section 153 AO remains possible or whether criminal tax proceedings may be initiated.

Documented evidence that tax risks have been systematically identified, responsibilities clearly assigned and effective controls implemented will then become a key exculpatory argument.

A functioning Tax CMS demonstrates that errors can occur despite proper organisation and not as a result of organisational failures. Without such a system, a managing director is significantly more exposed to allegations of intent, particularly in times of AI-supported data analytics and increasing international exchange of information.

What should be done now

Three key areas for action emerge from advisory practice:

1. Address legacy risks
Known tax risks should be reviewed now and, where necessary, remediated while Section 371 AO still applies in its current form.

2. Build a Tax CMS in a structured manner
Companies without a Tax CMS should start with a risk analysis: Which types of tax and processes carry the greatest sources of error? Where are clear responsibilities lacking? How are changes in legislation reliably translated into operational processes?

3. Further develop existing systems
A Tax CMS can only have a protective effect if it is actually embedded in day-to-day practice, monitored and continuously developed. A system that merely exists on paper will convince neither the tax authorities nor the courts. An external audit, for example in accordance with IDW Auditing Standard 980, can further strengthen the evidentiary position.

Conclusion

It remains to be seen whether voluntary self-disclosure with immunity from prosecution will be abolished entirely or merely reduced to a mitigating factor in sentencing.

What is certain, however, is that the previous “emergency exit” from criminal tax law is facing fundamental change, while the risk of detection continues to increase. For managing directors, tax compliance is therefore finally becoming a matter of personal risk prevention.

The Tax CMS is evolving from an optional best-practice measure into an indispensable protection tool. Those who act now can, on the one hand, still remediate existing risks and, on the other hand, create a robust foundation for the future.

After all, errors can never be ruled out entirely, even with careful organisation. An effective Tax CMS, however, helps minimise risks, identify errors at an early stage and document their causes in a transparent manner. It is precisely in this respect that its greatest added value will lie going forward.