Shift in Tax Audit Frequency for Businesses Reported
==================================================================
The number of tax audits in companies in Germany has seen a significant decrease over the past decade, with around 140,000 audits being carried out in 2021, a drop of nearly 60% compared to a decade ago. This decline has been a topic of concern for many, including Anne Brorhilker, a former public prosecutor, who recently criticised the trend in the "Süddeutsche Zeitung".
Several factors contribute to this decline, as highlighted by Brorhilker and various experts.
Resource Constraints and Focus Shift
One of the main reasons for the decline in tax audits is the budget and staff limitations faced by the German tax authorities. This reduces their capacity to conduct audits extensively, leading them to prioritise audits based on risk assessments rather than auditing broadly.
Digitalization and Automation
The adoption of advanced data analytics and automated screening tools enables tax authorities to identify high-risk taxpayers more efficiently, reducing the need for broad audit volumes.
Regulatory and Policy Changes
Changes in tax enforcement policies can influence audit intensity. There might be strategic shifts toward cooperative compliance or increased reliance on self-reporting by companies.
European and International Coordination
Increased cooperation and data sharing among tax authorities internationally (e.g., EU directives, OECD initiatives) reduce the necessity for repeated audits by individual countries as information becomes more transparent.
Economic and Political Factors
Economic downturns or political decisions may limit enforcement activities temporarily or permanently.
While specific studies or official reports from the German Federal Ministry of Finance or tax authorities may provide more precise and updated reasons, these explanations align with general trends observed in tax administration reforms in Germany and other developed countries over recent years.
Brorhilker further emphasised the need to strengthen the tax authorities in terms of personnel and structure to support the rule of law and democracy. She suggested that if the states are unable to hire enough staff, the federal government should provide assistance.
As the landscape of tax audits continues to evolve, it is crucial to maintain a balanced approach between efficiency and thoroughness to ensure fair and effective tax collection in Germany.
- The decline in tax audits could potentially impact the finance sector, as businesses may find it easier to evade taxes without rigorous auditing.
- To counter the decline and maintain a balanced approach, Brorhilker advocates for strengthening the tax authorities in terms of personnel and structure, which could contribute positively to the business environment in Germany.
