Noerr Compliance Day – tax law becomes focus of corporate compliance

Even long-established compliance management systems still have considerable deficiencies in some areas. “This is particularly true of risk prevention in tax law”, said Dr Lars Kutzner, speaking today at the Compliance Day, the law firm Noerr’s established event for practitioners which was again attended by over 150 German and international experts in Munich. A number of workshops also focused participants’ attention on a further key topic: how to act properly  in case of breaches committed by company management.

A survey of the Compliance Day participants clearly showed that tax compliance is a compliance issue that is still underestimated. For the Noerr partner and tax lawyer Kutzner one thing is certain: “For many companies, tax law is still below the compliance radar.” The reason is that it is often not clear whether tax compliance is a matter for the compliance or the tax department. Kutzner warned against underestimating the problem and cited a vivid example: “When a single employee abroad decided to change the operative sales structure, this cost an international group a mid-three-digit million sum.” What had previously been tax-free intra-Community deliveries were suddenly – unbeknownst to the company tax department – taxable inner-German deliveries. “This resulted in the repayment of several years’ worth of tax and a hefty fine”, said Kutzner.  

“This example shows yet again that compliance management systems must constantly progress and develop”, said Dr Torsten Fett, head of Noerr’s compliance group. “Even existing and established processes must be re-evaluated, and this raises the question of responsibilities and reporting lines.” Otherwise, compliance systems tended to lull one into a false sense of security, failing in an emergency.

The issue of how compliance officers should deal with breaches committed by company management is a matter that extends far beyond the legal domain. “This then raises not just legal but also practical questions”, said Dr Ingo Theusinger, partner at Noerr in Düsseldorf and director of one of the workshops on this subject. The first and most important question is: which members of the management or executive bodies does the compliance officer have to inform in the event of a suspicion report? “This very much depends upon the individual case at hand and could be quite a delicate question – particularly in companies with just a single managing shareholder who would then be the focus of suspicion”, emphasized Theusinger.

“In any event, taking no action is not an option,” said Torsten Fett, “as even failing to act can lead to prosecution.” Fett therefore advises compliance managers not to bear sole responsibility but to make use of existing escalation levels. In companies with executive bodies, for example, suspicions could be reported to the chairman of the management board or – should that be to no avail – to the supervisory board chairman, and a joint decision could be taken on how to proceed. Directly confronting the suspect should generally be avoided, however. “This can result in the destruction of evidence or – in extreme cases – swift dismissal of the compliance manager without the company’s problem ever having been solved”, Fett warned.

Noerr Compliance Day also covered topics such as current industry challenges in product compliance, practical aspects of implementing cartel law compliance in everyday corporate business and examining witnesses in internal company investigations.