Germany Mulls New Draft Law To Crack Down On VAT Fraud

by Ulrika Lomas, Tax-News.com, Brussels

02 July 2001

In a major effort to fight tax fraud in Germany, Finance Minister Hans Eichel is planning a draft law that will empower tax investigators with the authority to investigate suspected tax fraud without prior notice. At present, they must declare their intent to investigate tax payers' details and establish an appointment before doing so.

According to German news service Handelsblatt, Eichel says he also wants to set a limit of refunds on overpaid VAT, particularly where there is evidence of suspicious activity. If the tax authority considers the validity of the VAT claims to be in any way dubious, it will have the power to view evidence such as bank guarantees before it offers any sales tax repayments. 'We have to protect against the enormous amount of sales tax fraud with which we are faced,' the Minister explained.

The State Secretary for Finance, Barbara Hendricks, told reporters last week that the new bill is a measure to guard against a recent increase in fraudulent claims for VAT refunds. False claims have cost the German government around DM20 billion a year due to applicants altering their accounts and sometimes even forging transactions.

It is expected that the new law could boost tax revenues by DM2 billion next year. The State Secretary has confirmed that the proposals have already been agreed to in principle by federal and state level finance ministers. Eichel plans to introduce his draft bill to the Cabinet in August ready to take effect in early 2002.

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