Shift in Audit Practices: Lessening Number of Tax Examinations in Businesses
In a recent investigation across 16 federal states in Germany, the Süddeutsche Zeitung reported a significant decrease in the number of tax audits in companies over the past decade. This trend is primarily attributed to staff shortages, resource constraints, and the shift towards digital and data-driven audit methods.
The German tax offices have experienced a reduction in personnel, limiting their capacity to carry out tax audits effectively. This staff reduction is part of broader public sector austerity or restructuring measures observed during the decade.
As tax authorities increasingly adopt digital reporting, automation, and data analytics to monitor compliance, traditional audit methods involving direct audits have been deprioritized or supplemented by automated controls. This modernization and efficiency-driven approach in tax auditing have led to fewer traditional audits being conducted.
The growing complexity of tax compliance, including the need for handling large data volumes and ensuring data quality, places additional pressure on audit resources. This pressure may impact the number of audits executed manually.
Anne Brorhilker, a former public prosecutor and the managing director of the Initiative Finanzwende, criticized the decrease in tax audits and called for strengthening the tax authorities in terms of personnel and structure.
The report did not provide specific details about the impact of the decrease in audits on the government's revenue. However, it stated that the amount of back taxes collected through these inspections has been decreasing on a long-term average.
It's worth noting that the reform of property tax is one of the projects that auditors are helping with, according to the report. The total number of auditors employed by tax authorities in 2024 was 12,359, which is almost 10% less than in 2015.
In 2023, 1.7% of businesses, or 146,516, were audited, according to the Federal Ministry of Finance's last report in October 2024. This figure represents a decrease of almost 60% over the past decade, with around 140,000 audits conducted in 2024.
Additional auditors, it was noted, generate many times the income they cost to employ. Despite these findings, the question of how to balance the need for traditional audits with the benefits of digitalization and resource efficiency remains a topic of ongoing discussion in tax administration circles.
[2] Insights from related tax administration trends support these conclusions, including the impact of digitalization on tax functions and resource constraints in public agencies.
Businesses may find it easier to evade taxes due to the decreased number of traditional audits, as this trend is partially driven by the adoption of digital and data-driven audit methods by the finance sector. The shrinking workforce in tax offices further exacerbates this issue, as it limits their ability to conduct thorough audits across numerous businesses.
