Shift in Taxation: Decrease in Audit Frequency among Corporations
In a recent report by the Federal Ministry of Finance, it was revealed that the number of businesses audited in 2023 stood at 146,516, marking a significant decrease from previous years. This trend was further investigated by the "Süddeutsche Zeitung" across 16 federal states, revealing that the decline has been a consistent feature over the past decade.
The decrease in audits is primarily due to technological advancements in tax data processing, higher compliance costs driving better internal controls, policy shifts favouring exemptions for smaller entities, and the reallocation of audit resources towards higher-risk areas.
Advanced digital systems have enabled real-time data collection and monitoring, reducing the need for extensive manual audits. Automation and AI improve the ability to analyze large data sets efficiently, enabling more focused audits on high-risk cases rather than widespread audits.
As tax reporting becomes more complex and compliance costs rise, businesses invest in better internal controls and tax functions, which lowers the tax authority’s need to conduct frequent audits. This also leads to more self-correction and compliance upstream.
Some tax authorities have reduced the number of routine audits to allocate resources toward investigations of significant non-compliance or fraud, or towards newer areas such as cybersecurity audits related to data protection. In some jurisdictions, new audit exemption rules for smaller businesses or startups have reduced audit frequency.
The audit rate for large companies, however, remains significantly higher at 17.8 percent. The statement was made by Anne Brorhilker, a former public prosecutor and managing director of the Initiative Finanzwende, who criticized the trend of decreasing audits. Brorhilker suggested that if the states are unable to hire enough staff, the federal government must step in.
The reform of real estate tax is one of the projects that has diverted auditors' attention away from tax audits. This, coupled with staff shortages, has contributed to the decrease in audits. The number of tax audits in businesses has decreased by nearly 60% over the past decade, reaching approximately 140,000.
Audit cases are becoming more complex and time-consuming, posing a challenge for understaffed tax authorities. Brorhilker stated that strengthening the rule of law and democracy requires strengthening the tax authorities in terms of personnel and structure. The statement was made in an interview with the "Süddeutsche Zeitung".
- The current trend in the finance sector, evidenced by the reduction in business audits, is influenced by technological advancements like digital systems, automation, and AI, enabling real-time data collection and improving efficiency in data analysis.
- As compliance costs rise for businesses, they invest in better internal controls and tax functions, which not only lowers the need for frequent audits but also encourages more self-correction and upstream compliance, leading to a decline in audits.
