Tax Advisor for Tax Audits in Germany
What is a tax audit?
A tax audit is a fundamental component of German tax law, designed to ensure that businesses fulfill their tax obligations correctly. This involves the tax authorities scrutinizing a company’s financial documents, analyzing their accounts to confirm that they are meeting their tax obligations as per the applicable laws and regulations. Our tax advisors provide expert support throughout your tax audit process.
The primary objective of a tax audit is to validate the accuracy, completeness, and authenticity of a company’s tax data. This encompasses various types of taxes, including corporation tax, income tax, trade tax, VAT, and possibly other taxes, depending on the nature and operations of the company.
What is checked during a tax audit?
A tax audit examines various aspects of a company’s tax affairs to ensure correct fulfillment of tax obligations. This primarily includes financial accounting, asset accounting, payroll accounting, and the corresponding tax returns and exercised options in balance sheet, income, and procedural tax law. The main areas of focus of tax audits in Germany are:
Accounting and records
Auditors review the company’s accounts to confirm they are properly maintained and adhere to legal requirements. This includes all receipts and company records.
Corporate income tax
Corporation tax is the income tax applicable to corporations. The audit particularly focuses on the correct tax assessment of the relationships between the corporation and the shareholder and their impact on taxable income. The correct taxation of dividends received from other company holdings is also audited, among other areas.
Income tax
Income tax is the tax on the income of individuals. The entrepreneur’s income tax returns are reviewed to ensure that all income has been accurately calculated and taxed. The implementation of tax options and arrangements is also scrutinized for tax permissibility.
Trade tax
Trade tax is an income tax applicable to both companies and individuals who conduct a trade as per the trade tax law, thereby generating commercial income. Trade tax is paid to the cities and municipalities where the company operates. The audit primarily checks the correct calculation and consideration of additions (Section 8 of the German Trade Tax Act) and deductions (Section 9 of the German Trade Tax Act). If the entrepreneur operates in several business premises across different cities and municipalities, the tax auditor verifies whether the breakdown of the trade tax assessment amount has been accurately declared. This primarily aims to secure the tax revenue of the municipalities and cities where the permanent establishment is located.
Value added tax
For VAT, the auditor focuses on the correct taxation of sales in relation to tax liability and tax exemption. The review of input tax deduction is also a significant component of a tax audit. The auditor checks whether all prerequisites for the input tax deduction have been fulfilled.
Assessment declarations
In an assessment declaration, the total taxable result of a type of income is distributed among several participants. The allocated share is then taxed in the participants’ tax returns. This is typically the case for partnerships with multiple participants, as all involved entrepreneurs wish to participate in the result according to their contractual share. Here, the auditor first checks the correct determination of the overall taxable result and then the accurate allocation of the result to the participants based on their share in the company. However, an assessment declaration may also be required if the entrepreneur’s residence differs from the location of their permanent establishment.
Wage tax and social security
If the company has employees, the wage tax deductions and compliance with social security obligations are also checked.
Depreciation and amortization
The tax audit focuses on the accurate accounting of fixed assets, as well as the calculation and recording of depreciation and amortization.
Transfer prices
In the context of international transactions, it is examined whether the prices at which transactions are conducted between affiliated companies match those of service relationships with external, non-affiliated companies and are not used for tax evasion.
Operating expenses
The deductibility and appropriateness of business expenses such as travel costs, income-related expenses, and other business expenses are scrutinized.
Losses and loss carryforwards
The offsetting of losses and the utilization of carried forward losses are reviewed to ensure that they do not result in unjustified benefits.
Benefits in kind and non-cash benefits
The correct taxation of benefits in kind and non-cash benefits for employees is examined.
Special regulations and tax reductions
If the company benefits from certain special regulations or tax reductions, it is verified whether the requirements are fulfilled.
Documentation and archiving
The retention and documentation of all relevant documents and transactions are reviewed to ensure the traceability of the tax information.
How is the tax audit conducted?
The process of a tax audit includes several steps:
- Announcement: The tax office announces the tax audit in writing, specifying the time, scope, and types of tax to be audited.
- Preparation: The company prepares itself by gathering all relevant documents and records for the audit.
- Conducting the audit: The tax audit can be conducted either at the business owner’s premises or at the tax office. The auditor often wishes to meet the business owner personally and therefore visits the company initially. The auditor can then continue the audit at the tax office. In most cases, the auditor communicates with the company’s tax advisor.
- Reviewing the documents: The auditors verify the tax information, bookkeeping, and documentation for accuracy and completeness.
- Conclusion and report: Upon completion of the audit, the auditors draft a report detailing the results and any suggested adjustments or corrections.
- Potential back payments or refunds: Depending on the result of the audit, there may be additional tax claims or tax refunds.
How long does the tax audit take?
The duration of a tax audit varies depending on the complexity of the company and the types of tax to be audited. Smaller companies often require less time, while larger companies with complex tax structures may be audited for a longer period.
How many years are checked?
Typically, an audit period of three to four years is examined.
How often do tax audits take place?
The frequency of tax audits in Germany is influenced by various factors, such as the size of the company and its tax history. Generally, tax audits are conducted every four years. For small companies, the period between two audits can be up to ten years. For large companies, tax audits are carried out every three years or at shorter intervals.
How companies get through the German tax audit safely
- Accurate bookkeeping: Precise and complete bookkeeping is crucial to successfully passing the audit.
- Timely reporting: Ensure that your tax returns and declarations are submitted promptly to avoid potential discrepancies.
- Professional guidance: A tax advisor can steer you clear of tax pitfalls and equip you for the tax audit. Our specialists are always ready to lend a hand.
- Digital archiving: Utilize cutting-edge technologies to digitally archive your documents. This significantly simplifies the auditing process.
- Transparent communication: Collaborate with the auditors and respond to their inquiries candidly and transparently.
A tax audit might appear daunting initially, but with the correct preparation and collaboration, it can be effectively managed. Meticulous handling of your tax affairs not only simplifies the audit but also contributes to the long-term health of your company management.
Our tax audit services
Our experienced tax advisors guide you through the entire tax audit process:
- Preparation and planning: We aid you in meticulously preparing for the tax audit by scrutinizing your tax records and documentation, ensuring everything is in order.
- Document management: We assist you in arranging and archiving your tax documents to ensure that all necessary documents are readily accessible and well-organized.
- Guidance during the audit: Our experts are available throughout the audit to offer professional advice and support, ensuring you respond aptly to any auditor requests and provide transparent information.
- Communication with auditors: We serve as a conduit between your company and the auditors, ensuring smooth transmission of all inquiries and information. We regularly update you on the audit’s current status.
- Risk and opportunity identification: We examine your tax affairs and pinpoint potential risks and opportunities to enhance your tax situation.
- Lawful adjustments: If the audit necessitates adjustments or corrections, we assist you in legally compliant implementation and modification of your tax data.
- Resource optimization: We aid you in efficiently using resources during the audit and reducing unnecessary burdens on your company.
- Appeal proceedings: If an appeal against certain findings or decisions is required post-audit, we will competently and passionately represent you in the appeal proceedings.
Your tax advisor for the tax audit in Germany
Our contacts for any inquiries related to tax audits are always at your disposal. Don’t hesitate to reach out if we can present you with an enticing offer.
The most convenient way to reach us is via e-mail (info@winheller.com) or by phone (+49 69 76 75 77 85 21).
Do you need support?
Do you have questions about our services or would you like to arrange a personal consultation? We look forward to hearing from you! Please fill in the following information.
Or give us a call: +49 69 76 75 77 85 21