Months after Volkswagen admitted that it had sold up to 11 million cars worldwide fitted with software designed to produce favorable and flawed emissions tests, German prosecutors have announced an investigation into whether the deception also constituted tax evasion.
Up to 11 million cars worldwide were fitted with the software including the Audi A3 (2009-15), VW Jetta (2009-15), VW Beetle (2009-15), VW Golf (2009-15), and VW Passat (2012-15). Following the news, then Chief Executive Officer (CEO) Martin Winterkorn resigned, taking responsibility for what he called “irregularities.” The car company also vowed to launch an internal investigation into the scandal; the results of that investigation have not yet been made public.
In Germany, a company cannot generally be prosecuted for crimes. That’s by statute, according to Axel Weber, a Frankfurt lawyer at Factum Legal. Weber explains that under the German Penal Code, known as Strafgesetzbuch, only an individual, but not a company can be held responsible for criminal wrongdoings. There is an exception to the rule: a company can be held liable in cases of minor felonies.
Tax evasion – especially on this scale – and related financial and fraud crimes aren’t that minor and will likely be treated as a more major crime. That appears to be what’s happening here. Klaus Ziehe, speaking on behalf of the Staatsanwaltschaft Braunschweig (think of it like the DA’s office in the town of Braunschweig), confirmed that the investigation centers on five Volkswagen employees: those employees have not been publicly identified and Ziehe would not indicate whether they are high-level employees. The number of employees said to be involved in the investigation could “become higher or lower” as the investigation continues.
This investigation – which focuses on allegations of tax fraud – is separate from the investigation into the actual emissions fraud. So far, six Volkswagen employees have been targeted in that investigation.
By manipulating test results, Volkswagen was able to sell cars to taxpayers who received a tax benefit. In Germany, that benefit translated into lower motor vehicle taxes and inspection fees. As of 2009, motor vehicle taxes in Germany are paid on an annual basis and calculated based on the level of CO2 emissions. Since taxpayers would have reported lower CO2 emissions, Volkswagen ensured that many taxpayers paid less in tax than they should have paid.
To date, there’s no timetable for completing the tax fraud investigation though it will likely not be resolved by year-end. Ziehe believes that it would be “some months” at a minimum before the investigation is wrapped up.
A similar inquiry was launched in the U.S. from Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR). It’s been suggested that the Internal Revenue Service (IRS) might have paid out as much as $51 million in tax incentive credits for Volkswagen diesel vehicles based on flawed emissions tests. Senators Hatch and Wyden are investigating specifically whether the Volkswagen AG and Volkswagen Group of America “made false representations to the U.S. government in its certification for federal tax subsidies.” The company’s initial deadline to respond was October 30, 2015.
