Insights
TAX & BUSINESS
Tightening in the Financial Criminal Law Area
The Fraud Prevention Act 2024 introduced a new financial regulatory offence, which also makes the creation and use of dummy and covering invoices punishable.
This does not only affect fraudulent companies, but also forces honest businesses to check received invoices for their factual and tax correctness in order to avoid any financial criminal law risk.
According to the new provision of the Financial Criminal Law (Finanzstrafgesetz, FSG), a person commits a financial regulatory offence who, with the intent to simulate a business transaction or to conceal its true nature, falsifies documents, produces false or incorrect documents, or uses falsified, false or incorrect documents for tax or monopoly‑law accounting books or records. Penalties of up to EUR 100,000 may be imposed for violations.
Document falsification
A genuine document is falsified by anyone who unauthoritatively alters its content while also creating the impression that the current content originates from the issuer. A document is false when the apparent and actual issuer are not identical. A document is incorrect when a fact that is factually wrong is presented as correct (a “false certificate”).
The term also covers the handing over or providing of such documents to third parties. "Documents" refers to all papers that serve as the basis for statutory bookkeeping. This particularly includes invoices, cash receipts, waybills/transport confirmations or payroll statements.
Preventive measures
The regulation does not only target malicious (dummy) companies that actively carry out such malpractices and, for example, deliberately issue dummy invoices for services not rendered or demand/receive “kick‑back” payments so that other companies can claim an unlawful input tax deduction. Since the financial regulatory offence also punishes the (intentional) use of incorrect documents, all entrepreneurs should increasingly verify the accuracy of documents, such as invoices, as well as relevant databases (the Ministry of Finance’s list of dummy enterprises) to avoid unintentionally ending up in a problematic situation.
VAT aspects
Especially from a VAT perspective, not only the invoice issuer but also the invoice recipient must ensure that a correct invoice is present. If, for example, an invoice is wrongly issued with VAT when a VAT exemption or the reverse‑charge mechanism should apply, the invoice recipient may not claim input tax deduction on that false invoice. Should they do so, they are using an incorrect document and could, under certain circumstances, be guilty of the aforementioned financial regulatory offence.
Conclusion
Through the new financial regulatory offence, liability is moved forward from the previously non‑punishable preparatory stage, as the mere posting of a false invoice in the accounts can now be sanctioned. Consequently, all companies need to establish regular audit mechanisms to ensure the correctness of invoices and documents that enter the accounting system, thereby minimising financial criminal law risks.
According to the new provision of the Financial Criminal Law (Finanzstrafgesetz, FSG), a person commits a financial regulatory offence who, with the intent to simulate a business transaction or to conceal its true nature, falsifies documents, produces false or incorrect documents, or uses falsified, false or incorrect documents for tax or monopoly‑law accounting books or records. Penalties of up to EUR 100,000 may be imposed for violations.
Document falsification
A genuine document is falsified by anyone who unauthoritatively alters its content while also creating the impression that the current content originates from the issuer. A document is false when the apparent and actual issuer are not identical. A document is incorrect when a fact that is factually wrong is presented as correct (a “false certificate”).
The term also covers the handing over or providing of such documents to third parties. "Documents" refers to all papers that serve as the basis for statutory bookkeeping. This particularly includes invoices, cash receipts, waybills/transport confirmations or payroll statements.
Preventive measures
The regulation does not only target malicious (dummy) companies that actively carry out such malpractices and, for example, deliberately issue dummy invoices for services not rendered or demand/receive “kick‑back” payments so that other companies can claim an unlawful input tax deduction. Since the financial regulatory offence also punishes the (intentional) use of incorrect documents, all entrepreneurs should increasingly verify the accuracy of documents, such as invoices, as well as relevant databases (the Ministry of Finance’s list of dummy enterprises) to avoid unintentionally ending up in a problematic situation.
VAT aspects
Especially from a VAT perspective, not only the invoice issuer but also the invoice recipient must ensure that a correct invoice is present. If, for example, an invoice is wrongly issued with VAT when a VAT exemption or the reverse‑charge mechanism should apply, the invoice recipient may not claim input tax deduction on that false invoice. Should they do so, they are using an incorrect document and could, under certain circumstances, be guilty of the aforementioned financial regulatory offence.
Conclusion
Through the new financial regulatory offence, liability is moved forward from the previously non‑punishable preparatory stage, as the mere posting of a false invoice in the accounts can now be sanctioned. Consequently, all companies need to establish regular audit mechanisms to ensure the correctness of invoices and documents that enter the accounting system, thereby minimising financial criminal law risks.