Decline in Tax Audits Observed Among Corporations in New Report
In a recent report by "Süddeutsche Zeitung," it was revealed that the number of tax audits in companies across Germany has decreased significantly over the past decade. This trend has raised concerns among experts, with Anne Brorhilker, a former public prosecutor and managing director of the Initiative Finanzwende, criticizing the decrease.
According to the report, in 2024, only 1.7% of businesses, or 146,516, were audited. This represents a decrease of almost 60% compared to a decade ago, with around 140,000 audits in 2024. The report did not specify whether the staff shortages within the tax authorities are a recent development or have been ongoing for some time.
The report suggests that staff shortages could be one reason for the decrease in tax audits. However, it did not provide information on the potential impact of these shortages on the effectiveness of tax audits or the collection of back taxes.
The report also highlighted that audit cases are becoming more complex and time-consuming. Despite this, the rate of audits for large companies was significantly higher at 17.8% in the previous year.
The report did not provide information on the reasons for the decrease in tax audits or the impact on the German economy. It did not specify whether the staff shortages are due to budget constraints or other factors.
On a positive note, the report stated that additional auditors generate many times the revenue they cost to employ. However, it did not specify the time frame for the long-term average decrease in back taxes collected through audits.
The report by "Süddeutsche Zeitung" investigated the number of tax audits in the 16 federal states of Germany. It was found that the number of tax auditors employed by the tax authorities has decreased significantly, with 12,359 tax auditors in 2024, which is nearly 10% less than in 2015.
The report also noted that the number of tax audits has decreased primarily due to improvements in digitalization and automation of tax reporting by tax authorities. This has led to more efficient, data-driven compliance checks, reducing the need for traditional audit volume.
The report further explained that tax authorities worldwide have undergone rapid digital transformation, enabling electronic tax filings, real-time data access, and automated data analysis, which reduces the volume of manual audits required. The demand for more transparency and digital reporting from companies means tax functions now handle growing amounts of data, which can be more closely monitored without manual audits.
Additionally, automation and AI are increasingly used internally within tax functions to ensure compliance and quality control, diminishing the need for external audits on all returns but focusing on exceptions or flagged items. Tax agencies now better target audits to areas presenting the highest risk or potential revenue loss, improving audit effectiveness with fewer audits.
While audit service revenue overall has grown modestly, this is driven by specialized audit services beyond tax audits, including bankruptcy-related audits, rather than routine tax audits decreasing in number.
In conclusion, the decline in the number of tax audits in German companies over the past decade is primarily driven by greater reliance on data-driven digital compliance, strategic targeting of audits, and better internal automation and oversight within companies and tax authorities alike. However, the potential impact of staff shortages on the effectiveness of tax audits and the collection of back taxes remains unclear.
The decline in tax audits in German businesses, as revealed in the Süddeutsche Zeitung report, can be attributed to advancements in digitalization and automation of tax reporting, leading to more efficient checks and reducing the need for traditional audits. The increased use of automation and AI within tax functions also contributes to this trend.
Despite the decrease in the number of audits, the staff shortages within the tax authorities could potentially affect the effectiveness of tax audits and the collection of back taxes, but this aspect remains uncertain according to the report.
