Defensibility can be planned: D&O, criminal defence cover — and the question of who pays for your defence

Four lines of defence — each with its own bill

A serious VAT case is never one proceeding. It is four, running in parallel and invoiced in parallel: the criminal defence in the investigation and any trial; the tax defence against denial and liability assessments (§ 25f UStG, §§ 69, 71 AO); the procedural defence before the fiscal court — interim relief, suspension of enforcement, evidence; and the defence of your name and standing towards banks, trade credit insurers, suppliers and staff. Add expert witnesses on supply chains and accounting, and crisis communication.

The cost reality in carousel constellations is uncomfortable: five-figure sums rarely settle it. Multi-year proceedings with several accused, a parallel tax dispute and expert reports reach six-figure and, in exceptional cases, seven-figure total costs — before the tax claim itself has even been decided. Defensibility is therefore first of all a liquidity question. That is precisely where insurance architecture comes in.

The underestimated scenario: no conviction — but a liability assessment

The popular image of a criminal tax case ends with verdict or acquittal. Practice often ends differently: the criminal file is closed — for instance against conditions (§ 153a StPO) — or narrowed to a side issue, while the real burden remains on the tax side: input VAT denied, a liability assessment under §§ 69, 34 AO against management, § 71 AO in the carousel context. You “settle” on the tax side, as managers put it — and then answer personally for amounts that exceed a private fortune.

This is exactly the constellation D&O insurance is built for — and Germany’s Federal Court of Justice has confirmed it: a claim arising from a liability assessment under §§ 69, 34 AO is a covered financial loss within the meaning of D&O terms; the earlier restrictive view of the lower courts is superseded (BGH, judgment of 18 November 2020 — IV ZR 217/19, ECLI:DE:BGH:2020:181120UIVZR217.19.0; differently still OLG Düsseldorf, judgment of 20 July 2018 — 4 U 93/16). And because the intent exclusion in D&O policies generally bites only upon a final and binding finding of knowing breach of duty, cover remains workable in the many cases that end without a criminal conviction. Then a single contractual figure decides economic survival: the sum insured. Whether it reads “a million or two” or an amount that will not even carry the defence costs is not a formality — it is the difference between an orderly proceeding and personal financial ruin.

What the building blocks do — and where they tear

D&O (directors’ and officers’ liability) funds the defence against, and — where the claim succeeds — indemnity for, personal claims brought against managing directors, board members and senior officers; under the claims-made principle the date the claim is raised is decisive, which makes extended reporting periods, notifications of circumstances and seamless continuity of cover the difference between protection and a gap. Board members of a German AG face the statutory mandatory deductible (§ 93(2) sentence 3 AktG); GmbH managing directors do not. Criminal defence legal expenses cover — as a module or a dedicated policy — pays defence counsel from the investigation stage onwards, including freely chosen counsel and fee agreements above the statutory scale, plus experts and travel; upon a final conviction for an intentional offence, benefits must be repaid — but until then the defence is funded, and that is the point. Fidelity insurance and disciplined communication with trade credit insurers complete the architecture where your own staff or your buyers become the risk.

The typical tears run across all blocks: sums insured that are too low relative to VAT volume and length of proceedings; missing or late notification of circumstances; breaches of policy obligations in the heat of the moment — premature acknowledgements, uncoordinated statements; gaps when switching insurers; and the misconception that the company’s legal expenses policy also protects the officer personally.

Our service: the policy check

We do not broker insurance — we examine it. As part of the evidence and defence architecture, we review your existing D&O, criminal defence and legal expenses documentation for VAT-case fitness: sums insured against your VAT volume and realistic multi-year defence costs; criminal defence module and start of cover (investigation stage!); exclusions and the intent mechanism; reporting periods and continuity; a policy-obligations playbook for the first 72 hours; the interface between company and officer policies. The result is a clear action list — what your broker should renegotiate before it matters. In our experience the cheapest line item in the entire defence budget.

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