The 2027 federal budget proposal, with projected revenues and expenditures, is worrying. Germany will have to take on about €200 billion of new debt next year, with projected spending of about €555 billion ($634 billion).
It is no surprise that the federal government is seriously thinking about ways to increase revenue. The billions of dollars the government loses each year due to financial crimes immediately became clear. Although there are no official figures, experts estimate losses at between €100 and €200 billion per year.
Even if only a small part of it could be recovered through more effective auditing and harsher penalties, it would still be a huge help to Germany’s federal government, federal states and municipalities, whose budgets are funded almost exclusively by tax revenues.
Police, tax investigators and customs officials will work together
“The vast majority of citizens in this country pay their taxes, and they do so without any questions, without failure and without any fuss,” said Stefanie Hubig, the federal justice minister in Berlin. “But there are also people who hide their income from the tax authorities.”
This ranges from illegal employment to offshore tax shelters, shell companies and slush funds and many other deceptive practices.
Together with Finance Minister Lars Klingbeil, Hubig has developed a 26-point action plan aimed at better tackling tax fraud and money laundering. He also announced plans to set up a “Joint Center against Tax and Financial Crime” within the Customs Department. A total of 1,500 new posts are planned to strengthen the investigation, analysis and prosecution of money laundering and tax crimes.
Tax evaders cannot be allowed to get away
“A key component of the center will be a new data analytics center,” Klingbeil said. “Artificial intelligence will help sort through vast amounts of data, understand complex corporate structures, and better identify people on the front lines.”
Tax investigators from the federal states, the Federal Criminal Police Office and financial investigators from the Customs Department aim to cooperate more closely on major cases.
“Nobody should rest assured that they won’t get caught,” Klingbeil said. “We cannot let honest people suffer while tax evaders line their pockets through illegal tactics – they cannot be allowed to get away with it.”
But this is what has been happening in Germany for a long time. Take, for example, what is known as the low-X scandal. For more than 10 years, the government allowed capital gains taxes on stock dividends – which were paid only once or not at all – to be refunded multiple times. It was not until 2011 that the scandal led to numerous investigations, court proceedings and political debate about the responsibility of banks, investors and regulatory authorities.
Can tax evaders easily pay taxes?
Another frequently debated topic is the option of voluntary reporting of tax evasion in exchange for immunity from prosecution. Germany has allowed this practice since 1919.
The idea behind this is to encourage taxpayers to voluntarily disclose previously hidden income so that the government can recover the outstanding taxes. This arrangement became extremely important starting in 2008, as authorities began to uncover increasing numbers of Germans who were keeping anonymous bank accounts abroad to hide assets from taxation.
In 2011 and 2012 alone, around 30,000 voluntary disclosures were made after German tax authorities acquired several “tax CDs” with data on German customers in Swiss banks. Those who feared being caught opted to go to the tax office themselves, disclose their accounts and pay the tax due. Voluntary disclosure with immunity from prosecution has always been a thorn in the side of the centre-left Social Democratic Party.
“Criminals should no longer be able to get out of trouble so easily,” Klingbeil said.
Plan to seize Porsche, Rolex
Along with Hubig, Klingbeil is also pushing for harsher penalties. There are preparations to increase the maximum punishment for organized crime related to tax fraud from 10 to 15 years. Additionally, aggravated tax fraud will be reclassified to a prison sentence of at least one year.
Klingbeil and Hubig’s action plan also provides greater opportunities to seize assets obtained through questionable means. Previously, such seizures were possible only after evidence of a specific crime, such as money laundering, was found and a criminal conviction was imposed.
In future, customs officials will be able to seize assets for 180 days. “Porsche and Rolex will be gone for a while. It will really hit the criminals hard,” Klingbeil said.
The affected people will have to prove that they have acquired the property legally.
Cryptocurrency deals are under scrutiny
New rules will also be brought for buying and selling of cryptocurrencies. Currently, they are tax-free provided more than one year elapses between acquisition and sale. This is sure to change.
“We will also introduce blockchain analysis,” Klingbeil said. “Tax crime in the digital realm is increasingly moving away from traditional investigative methods, and we must respond to it.”
But the government also intends to take a closer look at the traditional business world – particularly where large amounts of cash are exchanged over the counter. Starting in 2028, anyone with annual sales over €100,000 will be required to use a cash register. For example, sellers of jewelery and antiques will be affected.
€1 billion additional revenue projected for 2027
The action plan will now be turned into law as soon as possible. Preliminary findings should emerge in August.
In its budget plan for 2027, Klingbeil has already included new revenues. They estimate an additional €1 billion ($1.1 billion) from the fight against tax crime, but expect the total amount to be much higher.
NGO financial changes has welcomed the new schemes, appreciating the effort to fight tax fraud more seriously and vigorously. Now, a press release said, these plans must be acted upon.
This article was originally written in German.