Shift in Tax Bureau's Approach: Decrease in Audit Cases for Businesses
Germany's Decreasing Number of Business Tax Audits: A Look at the Factors
The number of tax audits in businesses in Germany has decreased significantly over the past decade, according to a report by the Süddeutsche Zeitung. While the report did not provide specific details on the size of businesses audited or the reasons for the decrease, several factors are likely contributing to this trend.
Limited Resources and Personnel
German tax authorities have faced budgetary and staffing constraints, leading to fewer audits conducted despite an increase in the number of businesses. This reduction in manpower limits capacity to perform extensive audits.
Shift to Risk-Based Audits and Data Analytics
The tax authorities increasingly use risk scoring models and digital tools to target audits more selectively. Instead of broad-based auditing, they prioritize cases with higher perceived risk of tax evasion or irregularities, reducing the total number of audits but improving efficiency and effectiveness.
Increased Complexity and Digitalization
The growing complexity of corporate tax matters, along with the digitization of financial data, means audits require more specialized skills and take longer, resulting in fewer audits completed within the same timeframe.
Changes in Regulatory and Enforcement Focus
There is a stronger emphasis on cooperation with international tax standards, compliance programs, and voluntary disclosures, which may reduce the need for routine audits.
Economic and Political Factors
Periodic changes in government priorities and taxpayer compliance behavior can influence audit frequency. For example, more recent efforts focus on sustainability reporting or new regulations, shifting resources away from traditional tax audits.
While the report did not explicitly address the decline in tax audits in Germany, these explanations align with widely recognized reasons for declining tax audit volumes in developed economies over the past decade.
Staff Shortages and Other Factors
The report by the Süddeutsche Zeitung states that staff shortages are one reason for the decrease in tax audits. Auditors are assisting with other projects, such as the reform of real estate tax, within their own authorities, contributing to the decrease in tax audits. However, the report did not specify whether the staff shortages are due to a lack of hiring or high attrition rates.
Anne Brorhilker, a former public prosecutor and managing director of the Initiative Finanzwende, criticized the trend of decreasing tax audits, stating that strengthening the tax authorities is necessary for the rule of law and democracy. Brorhilker suggests that the federal government should help the states hire enough staff if they are unable to do so.
The report did not discuss the impact of the staff shortages on the complexity and time-consuming nature of audit cases. Additionally, the report did not specify the timeframe for the drop in the number of tax audits or provide details on the extent to which the reform of real estate tax is affecting the time and resources of the tax auditors.
The amount of additional taxes collected through tax audits has been decreasing on a long-term average. Despite these challenges, the principle remains that additional auditors generate multiple times the revenue they cost to employ.
The investigation was conducted across 16 federal states by the Süddeutsche Zeitung. If needed, German government tax authority reports and specialized economic studies could provide more targeted data on this trend.
- The staff shortages within German tax authorities, as mentioned in the report by the Süddeutsche Zeitung, are contributing to the decrease in business tax audits.
- Anne Brorhilker, a former public prosecutor, emphasized the importance of strengthening tax authorities to maintain the rule of law and democracy, suggesting that the federal government should assist states in hiring additional staff if necessary.
