Report reveals decline in tax investigations within companies
Decline in Business Tax Audits: A Concern for the Rule of Law
A significant decrease in the number of business tax audits over the past decade has been reported by the Süddeutsche Zeitung, raising concerns about potential tax evasion. The total number of tax authorities' business auditors was 12,359 in 2024, a decrease of nearly 10% compared to 2015.
According to the report, the decline in tax audits is attributed to several key factors. Resource constraints, such as budget cuts and staff shortages, have reduced the capacity of tax authorities to conduct thorough audits. The shift towards automated systems for tax processing means routine checks are handled electronically, reducing the need for manual audits but sometimes leading to fewer in-depth investigations.
Authorities have also prioritized audits that promise higher recovery or uncover large-scale fraud, leading to fewer audits of small and medium-sized businesses. Changes or simplifications in tax laws may have decreased the complexity of tax filings and, consequently, the necessity to scrutinise them as intensely.
Furthermore, the tax offices increasingly use data analytics to select cases considered high-risk, which can result in an overall decline in audit numbers but better targeting.
Anne Brorhilker, the managing director of the Initiative Finanzwende and a former public prosecutor, has criticised the trend of decreasing tax audits. In an interview with the Süddeutsche Zeitung, she emphasised the importance of strengthening the tax authorities for the rule of law and democracy. Brorhilker suggested that if states are unable to hire enough staff, the federal government should provide assistance.
In 2024, 1.7% of businesses, or 146,516, were audited by the tax authorities. The rate of audits for large enterprises was higher than the overall average, with a significant increase to 17.8% in the previous year. However, the amount of back taxes collected through these audits has been decreasing on a long-term average.
Brorhilker's comments highlight the importance of maintaining a robust tax audit system, as additional auditors generate multiple times the revenue they cost to employ. She argues that strengthening the tax authorities is necessary for the rule of law and democracy.
The decline in tax audits is a reflection of shifting operational realities within tax administrations, but it has raised concerns about potential unchecked tax evasion. As the trend continues, it will be crucial to find a balance between resource constraints, digitalisation, and strategic prioritisation to maintain a fair and efficient tax system.
The decrease in business audits could potentially lead to increased tax evasion in the finance sector. Maintaining a robust tax audit system is crucial for ensuring the rule of law and fairness in business, as suggested by Anne Brorhilker, the managing director of the Initiative Finanzwende.
