Increase in Fewer Tax Audit Rates among Corporations in Recent Reports
In recent years, there has been a significant decrease in the number of tax audits conducted on companies in Germany. Over the past decade, this figure has dropped by nearly 60%, a trend that can be attributed to several key factors.
One of the primary reasons for this decline is the digital transformation of tax authorities. Germany's tax administration has increasingly implemented digital reporting requirements and automated data analytics, enabling more efficient tax compliance monitoring. This shift reduces the reliance on traditional audits, allowing tax authorities to identify risks and anomalies from real-time data more efficiently.
Another significant factor is the focus on efficiency and data quality. Tax functions are adopting automation and AI to handle large data volumes, ensuring compliance and data quality while reducing audit frequency through better self-regulation and internal controls within companies.
Simplification of reporting requirements has also contributed to the lowering of audit workloads. Recent updates to European sustainability reporting standards, to which Germany aligns, involve significant reductions in mandatory disclosure points. This simplification reduces the complexity and volume of information that requires auditing, further decreasing audit demand.
While explicit Germany-specific audit statistics are not detailed in the search results, these systemic changes in tax authority capabilities and reporting requirements support a strong explanation for the substantial decline in tax audits over the last decade.
The audit rate for large companies was significantly higher at 17.8% in the previous year. However, in 2023, only 1.7% of businesses, or 146,516, were audited, according to the last report from the Federal Ministry of Finance in October 2024. This decrease in audits could be due to various factors, including staff shortages and the complexity and time-consuming nature of audit cases.
The tax authorities employ 12,359 tax auditors, which is nearly 10% less than in 2015. This staff shortage has been highlighted by Anne Brorhilker, a former public prosecutor, who criticized the trend in the "Süddeutsche Zeitung". Brorhilker emphasized the need for personnel and structural strengthening of the tax authorities, suggesting that the federal government should help the states hire enough staff if they are unable to do so.
Brorhilker also stated that strengthening the tax authorities is necessary to strengthen rule of law and democracy. She pointed out that additional auditors generate a multiple of the revenue they cost to employ, highlighting the potential benefits of investing in the tax authorities.
Despite the decrease in the number of audits, it's important to note that the amount of back taxes collected through tax audits has been decreasing on a long-term basis. This trend has prompted concern among some, such as Brorhilker, who argue that the decline in audits could potentially lead to a loss of revenue for the government.
One project that tax auditors are helping with is the reform of real estate tax. The need for personnel and structural strengthening of the tax authorities has been emphasized, and it remains to be seen how these challenges will be addressed moving forward.
In light of the digital transformation of tax authorities in Germany, the increased implementation of digital reporting requirements and automated data analytics has contributed to a reduction in traditional audits, thus freeing up resources for identifying risks and anomalies from real-time data more efficiently. This shift in the business realm of finance also involves the adoption of automation and AI by tax functions to ensure compliance, improve data quality, and reduce audit frequency.
