Shift in Tax Audit Practice: Decrease in Number of Audits Conducted in Businesses
In Germany, the number of tax audits on businesses has significantly decreased over the past decade, according to a report published by the "Süddeutsche Zeitung". The report, based on an investigation conducted in the 16 federal states of Germany, reveals that in 2024, only 1.7% of businesses, or 146,516, were audited - a figure that represents a near 60% drop compared to previous years.
This decline can be attributed to a variety of factors, including increased complexity and cost of audits, budget and staffing limitations, digitalization and improved compliance technologies, policy shifts towards risk-based auditing, and potentially political and economic considerations.
Tax administrations face challenges in auditing complex multinational businesses with sophisticated tax planning structures. Budget and staffing limitations have restricted audit capacity, causing authorities to prioritize higher-risk cases and rely more on automated data analysis and indirect compliance checks rather than traditional field audits.
The increase in complexity and cost of audits, coupled with staff shortages, has led to a situation where auditors are often required to work on projects within their own agencies, potentially diverting resources from tax audits. Audit cases are becoming more complex and time-consuming, requiring auditors to assist with other projects, such as the reform of property tax.
The report does not provide specific details about the projects auditors have had to work on that may have diverted resources from tax audits. However, these factors align with widely recognized trends in tax administration reforms and audit practices in many developed countries.
Anne Brorhilker, a former public prosecutor and managing director of the Initiative Finanzwende, has criticized the trend of decreasing tax audits. She argues 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 step in.
Despite the decrease in tax audits, the amount of back taxes collected through these inspections has been decreasing on a long-term average, according to the report. The decrease in tax audits has been a trend over the past decade, and it remains to be seen how this will impact the rule of law and democracy in Germany.
The report does not provide information about the efforts made by the states to address staff shortages in tax authorities, nor does it discuss the potential consequences of decreasing tax audits on the rule of law and democracy. For more precise statistics or official explanations from German tax authorities, consulting the Bundeszentralamt für Steuern or German Federal Ministry of Finance reports might provide detailed insights.
[1] Data from the audit service industry in the U.S. shows audit firm adaptation to economic conditions and shifting demands but does not directly address tax audits in Germany.
- The decline in tax audits on businesses in Germany, indicated by the decreased number of audits from 540,774 in 2015 to 146,516 in 2024, may be attributed to the increased complexity and cost of audits, budget and staffing limitations, digitalization, improved compliance technologies, policy shifts, and potentially political and economic considerations, as well as the need for auditors to work on projects other than tax audits due to staff shortages.
- Finance and business experts like Anne Brorhilker, a former public prosecutor and managing director of the Initiative Finanzwende, argue that strengthening tax authorities in terms of personnel and structure is necessary to maintain the rule of law and democracy, as they assert that the trend of decreasing tax audits could have significant implications for these aspects of German governance.
