Shift in Tax Audit Practices: Decrease in Tax Audits Observed across Businesses
In a report by the "Süddeutsche Zeitung," it has been revealed that the number of tax audits in businesses in Germany has decreased significantly over the past decade. The decline, reaching nearly 60%, has left approximately 140,000 audits being conducted annually.
The report attributes this significant drop to several key factors:
- Staffing limitations and resource constraints: German tax authorities have faced personnel shortages and budget cuts, limiting their capacity to perform extensive audits. This has led to fewer audits being conducted overall.
- Digitalization and technological improvements: With advances in electronic tax filing and automated data analysis, tax authorities can use risk-based selection and data analytics to focus audits more narrowly on high-risk cases, reducing the volume of broad audits but increasing efficiency.
- Shift in audit strategy towards risk assessment: Authorities prioritize audits based on perceived risk of tax evasion or non-compliance, decreasing routine checks on businesses considered low-risk.
- Economic and regulatory changes: Increased complexity in tax law and business models has encouraged tax authorities to be more selective in audit targets. Furthermore, increased economic uncertainty can lead to more cautious enforcement and auditing.
While data specific to Germany in the search results is limited, these trends align with common explanations observed in developed countries’ tax administration reports and economic analyses over recent years.
Anne Brorhilker, a former public prosecutor and managing director of the Initiative Finanzwende, criticized the trend of declining tax audits in the "Süddeutsche Zeitung." Brorhilker suggested that if the states are unable to hire sufficient staff, the federal government should step in.
The report also indicates that staff shortages are one reason for the decline in tax audits. In 2024, the tax authorities employed 12,359 business auditors, which is almost 10% less than in 2015. However, the report does not explain how the effort for real estate tax reform affects the number of auditors available for tax inspections.
The report also does not provide specific details about the size criteria for the staff shortages in the states or the size criteria for large enterprises. Interestingly, the rate of audits for large enterprises was significantly higher at 17.8%.
Despite the decrease in tax audits, it's important to note that the amount of additional taxes collected through tax inspections has been decreasing on a long-term average. However, generally, additional auditors generate multiple times the revenue they cost to employ.
The "Süddeutsche Zeitung" conducted an investigation across 16 federal states, but the report does not provide information about the reasons for the decrease in tax audits. The report did not specify the impact of the staff shortages on the number of tax audits, nor did it explain how the effort for real estate tax reform affects the number of auditors available for tax inspections.
In conclusion, the decline in tax audits in German businesses over the past decade is primarily due to limited tax office staffing, greater reliance on digital tools for targeted risk assessment, and changed enforcement strategies focusing on high-risk taxpayers rather than broad-based audits. The report raises concerns about the potential impact of these changes on tax revenue and the overall integrity of the tax system.
- The decline in tax audits in German businesses over the past decade can be linked to the staffing limitations and resource constraints faced by German tax authorities, resulting in fewer audits being conducted.
- The report indicates that the shift in audit strategy towards risk assessment, relying on digitalization and technological improvements, and economic and regulatory changes have also contributed to the significant drop in the number of tax audits in Germany.
