Germany risks ‘missing the boat completely’ on fighting VAT fraud

17 Nov 20

Germany’s inaction in fighting fraud in online sales has been blasted as “incomprehensible” by the country’s state audit office president – given the amount of money spent over the internet.

The government takes in €183bn of sales tax each year, making it one of the largest single taxes in Germany, but European Commission estimates put sales tax fraud at €50bn per year across the EU.

Kay Scheller, president of the Federal Audit Office, said Covid-19 has made maximising public revenue vitally important.

“Especially in times of crisis management, with considerable additional expenditure, the federal government has to secure its tax revenues,” he said.

“The fight against VAT fraud plays a key role in this. Sales tax fraud continues to cause billions in tax losses.

“This not only harms the budgets of the federal and state governments, but also disadvantages tax-honest entrepreneurs.”

A report from the audit office found “no discernible trend reversal” in the fight against VAT fraud, because fraudsters are quick to adapt and get around new regulations – turning anti-fraud efforts into “a game of cat and mouse” that the government is losing.

In particular, the report criticised the government’s lack of work on the use of technology, after the watchdog found the finance ministry had “no concept” of how future technology could be used, and had not developed approaches to use blockchain technology or electronic real-time monitoring of sales, as Italy and France have done.

"It is incomprehensible that the finance ministry does not deny the benefits of digital technologies for combating VAT fraud but at the same time does not act," said Scheller.

“Germany runs the risk of missing the boat completely. Other countries are ahead. Due to the high damage to the tax authorities and tax-honest entrepreneurs, there cannot be any further delay to the digital realignment of the fight against fraud.”

With €72.6bn of sales having been carried out online in Germany in 2019 – a number that is likely to have been far greater this year amid lockdown restrictions – the audit office recommended the government should investigate using blockchain, to “finally” modernise IT systems and to integrate existing anti-fraud instruments into the digital process.

The German finance ministry said the fight against tax evasion and tax fraud 

The fight against tax evasion and tax fraud is of great importance to the gederal government.

The Federal Ministry of Finance will examine and discuss the report of the Federal Audit Office together with the tax authorities of the federal states which are responsible for collecting and controlling sales tax,” the ministry said.

In our statement to the Federal Audit Office, we have already made clear that we do not share the view that no trend reversal has been achieved in the area of ​​VAT fraud.

We have introduced and implemented numerous legal and organisational measures in recent years to put a stop to fraud models. In cooperation with the federal states, we will continue to pursue this successful path in a targeted manner.

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