German War On Sales Tax Fraud Continues

by Ulrika Lomas, Tax-News.com, Brussels

19 July 2001

The German Finance Ministry has completed the draft bill started earlier this month outlining measures to combat sales tax evasion, it was revealed recently. Finance Minister, Hans Eichel, told the German news service, Handelsblatt, that he hoped that the tighter regulations will boost tax revenue for the federal government and the federal states by several billion Deutschmarks, and has already factored a sales tax increase of DM2.3 billion into his 2002 budget on the strength of the proposed law.

According to Handelsblatt, the document outlining the reasoning behind the bill states that the cases of sales tax evasion which have been uncovered so far in the country have often involved sums running into many millions of Deutschmarks, and concludes that immediate action is necessary in order to avoid huge losses in tax revenue. If approved, the law will empower tax investigators with the authority to investigate suspected tax fraud without prior notice, and will set a limit of refunds on overpaid VAT, particularly where there is evidence of suspicious activity.

The bill, which it is hoped will be passed by the lower house of parliament (Bundestag) before the end of the year, ready to take effect in early 2002, could be seen as a timely response to the warnings of the German Federal Audit Office, which recently spoke of the pressing need for stronger measures over sales tax evasion. It argued that the other EU members were addressing the problem far more vigorously, and called the German system: 'The most liberal sales tax system in Europe.'

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