Shift in Tax Audit Practices: Decreased Scrutiny in Corporate Entities
In the past decade, the number of tax audits in businesses across Germany has significantly decreased. This trend can be attributed to several key factors, including resource constraints within tax authorities, digitalization, shifts in tax enforcement priorities, and regulatory changes.
Resource limitations have played a significant role in this decline. Budget and personnel restrictions have reduced the capacity of tax authorities to conduct physical audits, leading to a reliance on digital data and automated risk assessments. The use of electronic tax returns and real-time digital reporting enables authorities to identify discrepancies or risks through data analytics, rather than relying on routine audits.
Another factor is the shift towards risk-based auditing. Audits are increasingly targeted at high-risk taxpayers or transactions, aiming for higher efficiency. Simplified reporting standards and compliance requirements can also reduce the necessity for frequent audits.
Recent data indicates that the tax authorities employed 12,359 business auditors in 2024, which is nearly 10% less than in 2015. This decrease in staff has correlated with a long-term decrease in the amount of back taxes collected through tax audits.
The rate of audits for large companies was significantly higher at 17.8%, but the number of tax audits in businesses has decreased by almost 60% over the past decade, to around 140,000. According to a survey conducted across the 16 federal states and reported by "Süddeutsche Zeitung", the number of tax audits has been decreasing across all the surveyed states.
The decline in tax audits has been a subject of criticism. Anne Brorhilker, a former public prosecutor and CEO of the Initiative Finanzwende, has criticized this trend, calling for strengthening the tax authorities in terms of personnel and structure to uphold the rule of law and democracy. Brorhilker suggests that if the states are unable to hire enough staff, the federal government should provide assistance.
However, it's important to note that this trend aligns with general international and European trends in tax administration modernization and enforcement rationalization observed over recent years. For more specific details on Germany, government and tax authority reports would provide the best insight.
Despite the decrease in audits, it's worth noting that audit cases are becoming more complex and time-consuming, requiring auditors to assist with other projects. Additionally, an additional auditor typically generates multiple times the revenue they cost to employ. Many auditors are also assisting with the reform of real estate tax within their own departments.
In conclusion, while the decline in business tax audits in Germany is a significant shift, it is part of a broader trend towards digitalization and risk-based auditing in tax administration. For a comprehensive understanding of this trend in Germany, official reports from the German Federal Central Tax Office or Ministry of Finance would provide valuable insights.
The budget and personnel constraints have led to a reduction in the capacity of tax authorities to conduct physical audits, thereby relying on digital data and automated risk assessments in business finance. (Resource limitations)
The decline in the number of business tax audits can be attributed to the shift towards risk-based auditing, with audits increasingly targeted at high-risk taxpayers or transactions. (shift in tax enforcement priorities)
