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Turnover tax fraud: Boast digital transformation in tax offices

Oct 29, 2020

Tax fraud causes billions of losses in tax revenues. To tackle this challenge, fiscal authorities need more and better digital technologies.

In Germany, fighting turnover tax fraud is like tilting at windmills. Fraudsters are able to respond quickly and flexibly to any new regulations and rules. Traditional fraud schemes have given way to push digital fraud. The government is running a race it cannot win. Complex fraud schemes and an accelerated digital transformation cause sizeable and rising tax losses. In a special purpose report, we noted with concern that neither the federal government nor the states have found a way to cope effectively with this challenge.

Tilting at windmills – Traditional fraud fighting tools fall short of the mark
Our audit findings show that fraud fighting approaches currently in use prove inadequate to effectively combat digital turnover tax fraud.

Kampf gegen Windmühlen - Analoge Betrugsbekämpfungsinstrumente reichen nicht aus

Kay Scheller, the German SAI’s President, stated: "With the current tools in place, the tax authorities can neither cope with traditional VAT carousels nor with emerging digital fraud schemes. We urge the Federal Ministry of Finance to enhance non-digital approaches and to ramp up digital capacities in the fiscal administration. Germany is at risk of lagging far behind other countries. This deliberate behaviour is imposing a substantial cost to tax authorities and to those enterprises that seek to comply with the requirements of the applicable tax regime. For this reason, the government should shift the fight against tax fraud into the digital arena without any further delay. We see an urgent need for action across all government levels".

In Germany, turnover tax has a volume of €183 billion and is one of the taxes with the highest tax yields. At the same time, however, the turnover tax system is also very vulnerable to fraud. For many years, tax evasion and tax avoidance schemes have been the cause of an ever-increasing tax gap.

Our special purpose report serves to inform parliament and the government about the current state of the fight against turnover fraud and includes recommendations for improvement.

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