The tax and social security authorities verify the correct declaration and payment of taxes and social contributions through a range of external audits. We give you an overview of the most common audits and the usual procedure.
1. Tax Field Audit (Betriebsprufung)
The tax field audit is normally announced at least one month in advance by means of an audit order. Bookkeeping, profit calculations and VAT returns for three consecutive years are subjected to scrutiny.
Under the Tax Field Audit Regulations (Betriebsprufungsordnung), the audit should take place at the taxpayer's business premises. However, many small and medium-sized businesses do not have a suitable workspace that they can make available to one or more auditors for several days or even weeks at a time. In your interest, we therefore try to arrange with the auditor for the audit to take place at our tax office. We keep a permanent auditor's room available for this purpose. During the audit we take care of the auditor, allowing you to carry on with your normal business activities with minimal disruption. The auditor will nevertheless in most cases carry out an inspection of the business premises. We can deal directly with the auditor on many questions and requests for information. Questions concerning unclear or important matters are resolved in joint meetings between you, the auditors and us.
The audit concludes with a closing conference at which the auditor presents the audit findings and disputed points are discussed. The auditor then produces a written audit report. We can also submit written comments on the findings made, where necessary. Amended tax assessments for the audited years may subsequently be issued. If audit findings remain disputed, we can lodge an objection (Einspruch) against the relevant tax assessments and, if necessary, bring an action before the fiscal court.
The tax office selects businesses for a field audit on the basis of various criteria:
1. Risk classification, e.g.:
- Tax obligations are not met on time or not met at all.
- Businesses with significant cash transactions (used car dealers, catering businesses, etc.)
- Businesses whose key figures deviate substantially from the industry average.
- Income that over several years provides no sufficient basis for a living.
- Businesses that have previously come to attention at an earlier audit.
- Businesses with losses over several years.
- Sharp fluctuations in turnover without any recognisable reason
- Change of profit calculation method
- Cessation of business
2. Random selection
2. Special VAT Audit (Umsatzsteuer-Sonderprufung)
The special VAT audit generally covers shorter periods than the field audit. It may, for example, relate to a single month only. Furthermore, only VAT matters (correct VAT treatment, input VAT deduction, etc.) are examined. Apart from this, what has been said about the field audit applies. The tax office frequently orders special VAT audits in particular in the following cases:
- Businesses that have made significant investments and are claiming input VAT surpluses arising from these.
- Exporters claiming input VAT surpluses as a result of their tax-exempt supplies.
- Businesses providing services in particular to foreign companies that are not subject to VAT in Germany. These also frequently give rise to input VAT surpluses.
- Newly established businesses.
- Businesses that are growing very rapidly.
3. Unannounced VAT Inspection (Umsatzsteuer-Nachschau)
The tax office has the option of commencing a VAT inspection without prior notice. Here, as with the special VAT audit, only VAT matters are examined, usually for current periods. Since the VAT inspection is unannounced, this often results in:
- the auditor not finding the business owner, as they happen to be away, or
- the auditor finding no documents for the audit, since the bookkeeping data is normally stored only at our office and the current bookkeeping records are also frequently held there.
Ultimately the auditor then has to arrange a further appointment with us anyway, so the unannounced VAT inspection converts into a special VAT audit.
4. Payroll Tax Audit (Lohnsteuerprufung)
The tax office audits employers with a larger number of employees to check whether payroll taxation has been carried out correctly.
5. Social Security Audit (Sozialversicherungsprufung)
All employers, regardless of their size, are audited every four years by the German Pension Insurance (Deutsche Rentenversicherung). This audit covers the correct calculation and payment of social security contributions. Audits now also cover the calculation and payment of contributions to the employers' liability insurance association (Berufsgenossenschaft) and to the Artists' Social Insurance Fund (Kunstlersozialkasse).
Tips for All the Audits Mentioned
- As soon as you hear about an audit, please call us and we will discuss the next steps. Do not panic - we are here to help you!
- If possible, have the audit conducted at our office. We have experience in dealing with auditors.
- Where possible, only speak to the auditors together with us, in order to avoid misunderstandings.
- If the auditor does find genuine grounds for objection, we will - in agreement with you - take every step to keep any financial disadvantage as small as possible.
- If the auditor makes incorrect findings, draws unreasonable conclusions or takes incorrect tax law positions, we will fight for your rights together with you - during the audit, in the appeals process and if necessary before the courts.