What happened?
New (Fin)tech platforms have led to the rise of innovative business models such as Airbnb which often have the reputation of being an “easy” way to make money. Via the Airbnb platform, lessors can offer short-term lettings of their rooms or flats.
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It appears that a tax investigation in Hamburg has received data from Airbnb about German lessors which they now want to pass on to tax authorities responsible for the relevant lessors. If and to the extent these lessors have not properly declared this income in their tax declarations, immediate action is required to reduce or avoid the imminent criminal penalty for tax evasion.
The same need for action is required with regard to investors who are currently keeping, or have done so in the past, their assets in banks in Austria. We know from our own advisory practice that tax authorities have information about these investors, including former investors who have liquidated their Austrian accounts and securities accounts in the recent past, e.g. in 2016.
Airbnb lessors
Short-term lettings are subject to income tax
Any income from short-term lettings of flats (less allowable expenditure) is subject to income tax in Germany (Section 21 German Income Tax Act, EStG) and has to be included in the annual tax return, unless the sum of all taxable income, e.g. a salary from employment, does not exceed the current tax-free allowance of EUR 9,408 for an individual and EUR 18,816 for a married couple. If the Airbnb income alone does not exceed EUR 520.00 per annum, the income is not subject to tax (Section 21.1 para. 1 EStR).
Don’t forget VAT
If the rental income in the current year exceeds €50,000.00 and €17,500.00 in the previous year (Section 18 para. 1 German VAT Act, UStG), VAT is due on this income and a VAT advance return as well as an annual VAT declaration needs to be prepared. As these thresholds are quite high, this often only applies to large properties or lessors with numerous properties. However, lessors need to bear in mind that these thresholds do not apply per property but for all properties they are letting.
The threat of criminal tax proceedings
It appears that the Hamburg tax investigation has received data from Airbnb on lessors in Germany. This data has been analysed and the intention is for the information to be passed on to the responsible state tax authorities throughout September via so-called monitoring notices.
If lessors deliberately did not inform the tax authorities about this income by leaving it off their tax returns, they will face criminal tax proceedings and a criminal penalty by way of a fine or even imprisonment. In light of this, we are working together with criminal law expert Florian Kraus.
According to Florian Kraus, it does not amount to an effective defence if lessors plead ignorance and tell the tax authority that they were not aware that the rental income was subject to tax.
Does a self-indictment help?
The criminal penalty can only be avoided by submitting a self-indictment. However, even this may not suffice in every case as incomplete self-indictment will not be accepted. The declaration must contain all the information required by the authorities within the statute of limitations i.e. for the past ten years. Additionally, it needs to be drafted in a way that allows the relevant tax authority to issue a revised tax assessment without any further investigations required.
It should also be noted that a self-indictment will not have the effect of avoiding a criminal penalty if there are so-called “blocking reasons”. In the case of Airbnb lessors, one blocking reason is of particular importance: The tax evasion must not yet have been discovered. The question as to what constitutes a discovery has been the subject of numerous legal proceedings in the past. Florian Kraus states:
Even after analysing the case law in this area, it may not always be possible to provide a definitive answer as to whether the tax evasion has already been discovered or not. In general, it can be said that it amounts to a discovery if the relevant tax authority has received new information, it then compares this with the data it has received from the taxpayer and discovers that income has not been declared at all or not in full. In cases where a taxpayer has even tried to cover up income rather than just leave it out of the tax return, it is already sufficient that it appears to be obvious based on general criminal experience that a financial crime or offence was committed. In that case, a concrete comparison between the monitoring notice and the tax return is not necessary anymore.
What to do if a criminal penalty cannot be avoided by way of a self-indictment anymore?
What can you do if the tax authorities have already discovered the tax evasion and it is therefore no longer possible to submit a self-indictment to escape the criminal penalty? In many cases, the lessor will not know whether their actions have already been discovered or not. It is therefore advisable to submit a self-indictment as quickly as possible in order to avoid the discovery.
Even if discovery has already taken place, Florian Kraus advises to submit a self-indictment with all the relevant content included as this can significantly reduce any criminal penalty to be imposed.
Need for action also for former investors with assets held in Austrian banks
Investors who did not include income from assets held in banks in Austria in their tax returns, are in the same boat as Airbnb lessors and must similarly act accordingly. Last autumn, Austrian banks reported the required data of their German customers to the relevant authorities in Austria for the first time. The latter then forwarded the data to the German Federal Central Tax Office. From our advisory practice we know of cases where taxpayers have been contacted and asked about information about their assets held in Austria.
However, it should be noted that the German tax authorities are not just aware of investors who were holding assets at Austrian banks in this year or the previous year. Additionally, investors have been contacted who had already liquidated their accounts and securities accounts in Austria e.g. in the year 2016 and moved their assets back to Germany.
Similar to the Airbnb lessors (see details provided in the paragraphs above), investors face criminal tax proceedings and can only avoid a criminal penalty by submitting a valid self-indictment.
About Florian Kraus:
The lawyer and criminal law specialist was a salary partner at stetter Rechtsanwälte in Munich until January 2021.. For further information on Mr Kraus, please click here.
Cover picture: Copyright © Adobe Stock / cbies
