Shift toward Decreased Tax Reviews within Corporations
In a significant change, the number of business tax audits has decreased by nearly 60% over the past decade, with around 140,000 audits in 2024. This trend is primarily attributed to budget and staffing constraints at tax agencies, strategic focus on high-risk, large, or international cases, and technological advancements that enable automated compliance checks.
The Federal Ministry of Finance reported in October 2024 that 1.7% of businesses, or 146,516, were audited in the previous year. The rate of audits for large companies was significantly higher at 17.8%, while the rate for small businesses was lower.
The reduction in audits is not solely due to the decreasing importance of tax compliance. In fact, the revenue generated from audits is more than the costs of employing additional auditors. However, the long-term trend shows a decrease in the amount of back taxes collected through audits.
The states have cited a shortage of skilled workers as a reason for the decrease in tax audits. Anne Brorhilker, a former public prosecutor and managing director of the Initiative Finanzwende, criticized this trend, stating that strengthening the tax authorities in terms of personnel and structure is necessary to strengthen rule of law and democracy. Brorhilker suggests that if the states are unable to hire enough staff, the federal government should provide assistance.
Despite the decrease in audits, the complexity and time-consuming nature of audit cases have evolved over time. The report does not discuss any potential consequences of this trend on the overall tax revenue or the fairness of the tax system. It also does not specify whether the shortage of skilled workers is a recent development or a long-standing issue.
Many auditors are assisting with other projects, such as the reform of real estate tax, within their own authorities. The report does not provide any data on the number of auditors currently working on the real estate tax reform or the impact of this work on the audits conducted.
In conclusion, the decline in business tax audits reflects an evolving approach to tax enforcement rather than a decrease in the importance of tax compliance. Addressing the shortage of skilled workers and reallocating resources to maintain a balance between enforcement and technological advancements could be key to ensuring a fair and effective tax system.
- In order to maintain a balanced approach between enforcement and technological advancements, the federal government might consider applying assistance to help states overcome their staffing shortages.
- To strengthen rule of law and democracy, Brorhilker advocates for increasing the personnel and structure of tax authorities, even as business audits continue to decrease in number.
