Decline in Tax Audits Observed Across Companies
In recent years, there has been a significant decrease in the number of tax audits conducted on businesses in Germany. This decline can be attributed to a variety of factors, including resource constraints at tax authorities, advancements in digital tax reporting and data analytics, a strategic shift towards risk-based auditing, economic uncertainty, and changes in regulatory and tax frameworks.
One of the key reasons for the decrease is the resource limitations and staffing shortages within German tax authorities. Budget constraints have forced tax administrations to prioritise audits by estimated risk or potential recovery rather than volume, a common challenge in many developed countries.
Another contributing factor is the advancements in digital tax reporting and data analytics. These advancements have enabled tax authorities to perform more targeted audits, focusing on cases with higher audit risk or inconsistencies flagged by automated systems. This approach reduces the total number of audits but potentially increases audit quality and efficiency.
The shift towards risk-based audits and compliance checks rather than routine audits has also contributed to the decline. This strategy optimises the use of limited audit resources by concentrating efforts where non-compliance is suspected, resulting in fewer but more precise audits.
Economic uncertainty and evolving business practices have prompted some caution in enforcement intensity. Heightened policy uncertainty often leads governments and agencies to adjust their enforcement strategies to balance revenue protection with maintaining business trust and economic stability.
Changes in regulatory and tax frameworks may also have played a role by simplifying compliance and closing loopholes, thereby reducing the necessity for frequent audits.
In 2023, the audit rate for large companies stood at 17.8%. However, the average amount of tax payments collected from these inspections has been decreasing long-term. These trends have been criticised by Anne Brorhilker, the managing director of the Initiative Finanzwende, who stated that failure to strengthen the tax authorities is negligent.
Brorhilker, a former public prosecutor, advocated for strengthening the tax authorities in terms of personnel and structure. She made these remarks in an article published in the "Süddeutsche Zeitung", following a survey conducted across 16 federal states. If states are unable to hire enough staff, Brorhilker believes that the federal government should provide assistance.
The decrease in the number of audits is a trend observed in many developed economies, including Germany. While the exact German-specific data was not found in the given search results, these general international trends and economic factors align with known reasons for audit volume decreases in developed economies.
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