Almost 200,000 large and small companies are audited each yearFrom the Finance Minister's point of view, an audit is an extremely effective instrument which is used intensively. Approximately 8 million businesses are registered in the relevant register at the local tax offices. Exactly 2.4% of all taxable businesses were audited in 2014 – almost 200,000 companies. Of these, 42,300 so-called large-sized corporations (1 out of 5) were put under the microscope by auditors.Four-fifths of back payments owed for taxes and interest can be attributed to large-sized corporations. In line with the definition used by the tax offices, these include manufacturing enterprises bringing in revenues of just 4.3 million euros per year (or more). Statistically speaking, they are thrown into the same category as global players.
Success: 1.3 million euros per auditorAccording to the ruling of the Federal Court of Finance of 2 October 1991 (BSTBl I p. 220),"tax audits", which company audits are a part of, "primarily serve to ensure fair taxation via the just enforcement of tax laws". This idealistic approach deserves respect.However, as the former director of a Company Audit department of the Free State of Bavaria, I am very familiar with the other side of the coin: as a result of the above-mentioned investigations, a staggering 17.9 billion euros were received by the federal tax authorities in 2014. 13,500 often highly motivated auditors make their rounds on behalf of the tax authorities. On average, each auditor collects more than 1.3 million euros per year for their department. Some more, some less: competition is a motivating factor.
The fact that a complete stranger gets access to internal business information as well as private matters does not go unnoticed, and the threat of criminal proceedings causes even more concern. Auditors are very aware of this. They frequently point out potential consequences under criminal tax law brought about by audit findings to taxpayers. They also like to emphasise the possibility of criminal proceedings against the company and/or its officers. These tactics can definitely lead to additional tax income. To put pressure on companies and individuals within the framework of what is legally and ethically appropriate is completely permissible and should not reflect negatively on the auditor. However, the parties involved must be prepared for the gruff methods used by some auditors.
Fines for tax offences are on the riseWhile the majority of criminal tax proceedings are not initiated based on audit findings, the number of those that are is growing. In 2014, about 90,000 criminal tax proceedings were initiated and concluded. Approximately 18% of these resulted in a penalty order or were handed over to the prosecution.Fines imposed in connection with tax offences are also a sign of stricter sanctions against offenders. Up until 2011, fines and monetary penalties collected, including monies paid in accordance with Section 153a of the Code of Criminal Procedure (Strafprozessordnung, StPO), amounted to somewhere between 60 and 70 million euros per year. Since 2012, when tax authorities collected a record 120 million euros in fines, the 100-million-euro mark is regularly reached or exceeded. While the total amount of fines and penalties received is more than 30% higher than it was before 2012, the number of prison sentences imposed on tax offenders actually decreased after 2009. The seriousness of tax law violations has not increased, however, a larger number of offences are prosecuted. These days, authorities are also going after the little guys, not just the big corporations. As a result, more and more companies and private individuals are on the tax authorities' radar screens.
Security – competent and professional support throughout the entire processThe line between fiscal relevance and criminal tax law relevance of audit findings is not clearly drawn. Auditors now pay more attention to this indifference than they used to. Competent and professional support throughout the entire audit process is therefore recommended – right from the start, when the audit is first announced by the authorities.
Commentary by Dr. Andreas Hofner
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