Accelerated tax audit 2025: digitalization, new obligations, stricter requirements

The framework conditions for tax audits in Germany will be fundamentally reformed from 2025. With the new legal regulations, some of which were or will be introduced as early as 2023 or otherwise from 2025 as part of the DAC 7 Implementation Act of December 28, 2022, companies can expect a comprehensively digitalized audit process. This modernization will lead to more efficient procedures and greater transparency, but will also entail stricter obligations to cooperate as well as drastic sanctions. We have summarized the opportunities and downsides of the new regulations for you.

The opportunities – digitalization and transparency: the tax audit is becoming more modern and efficient

On January 1, 2025, significant amendments came into force that are intended to make tax audits more efficient and modern. Some of the standards have already been in force since 2023. The modernization of tax audits focuses on digitalization and closer cooperation between companies and the tax authorities. Some of the amendments promise benefits:

Audit simplifications through Art. 38 EGAO – with unclear conditions

Since 2023, Art. 38 EGAO (Introductory Act to the German General Tax Code; test phase until December 31, 2029) has offered companies the opportunity for faster and simplified tax audits with effectively implemented tax compliance management systems (TCMS). However, it is currently unclear which requirements such a TCMS must meet. This will probably only become clear in the near future. However, the implementation of a TCMS is worthwhile in any case, as it can minimize risks (especially for the management), make internal processes more efficient and promote cooperation with the tax authorities.

Mandatory encryption for digital meetings – exceptions possible

The tax authorities have also permitted digital meetings since 2023. However, it is mandatory to use an encryption method that corresponds to the current state of the art in order to guarantee tax confidentiality. Platforms such as Microsoft Teams, Google Meet or Zoom should meet these requirements. In case of doubt, encryption can be waived. However, only if all parties involved expressly agree. For companies, this means that they must check their IT infrastructure for compliance and, if necessary, adapt or coordinate it with the tax authorities. 

Authorization to issue orders in accordance with Art. 147b AO: Uniform digital interfaces

Another milestone in digitalization is the introduction of an authorization to issue an order in accordance with Art. 147b AO. This standard, which has already been introduced in 2023, aims to create standardized interfaces for the transmission of tax data. For companies, this means

• Standardized data set descriptions that accelerate the exchange with the tax authorities and eliminate the need for time-consuming conversions.
• More efficient audits thanks to standardized formats, such as the digital payroll interface (“DLS”) and the digital interface of the tax authorities for cash register systems (“DSFinV-K”).

In December 2023, the German Federal Ministry of Finance presented a draft for the so-called Accounting Data Interface Ordinance (“DSFinVBV”). The final regulation is not only expected to revolutionize auditing processes, but also change the requirements for GoBD (German principles for the proper keeping and storage of books, records and documents in electronic form) documentation. Companies that adopt the new standards at an early stage will be able to provide their data more efficiently in future and thus complete audits more quickly.

Looming estimate – but only after a corresponding ordinance has been issued

According to Art. 158 (2) no. 2 AO, accounting data must be provided in the digital form prescribed by the tax authorities in future. If the required interfaces are missing or the data does not comply with the specifications, the bookkeeping may be deemed improper – the tax authorities may then estimate tax data.

Important: However, this regulation only applies if a regulation is issued in accordance with Art. 147b AO. Such a regulation has not yet been issued. Companies therefore still have time to adapt their systems accordingly in order to prevent subsequent estimates and additional payments.

Faster audits by requesting documents and announcing key audit issues

Since 2023, the tax authorities have been able to request documents subject to recording or retention obligations at their discretion within a reasonable period of time (in accordance with Art. 197 (3) AO, we reported). 2 to 4 weeks should generally be deemed reasonable. The request is usually made with the tax audit notice, but can also be made independently of it and can be contested independently.

The documents must be provided in a machine-readable form (e.g., CSV, XML, DATEV) if they have been created using a data processing system. After submission, the tax authorities will provide information on the key audit matters, which should facilitate the preparation and course of the audit in many cases. However, it should be noted that the notification of key audit matters does not constitute a restriction of the tax audit to these matters within the meaning of Art. 194 AO. Despite this transparency, the audit can therefore be extended to other matters at any time, even after the tax authorities have specified the key audit matters.

New deadlines speed up tax audits

From 2025, Art. 197 (5) AO will provide a clear time limit for tax audit notices (only) for advised companies and ensure greater planning security. In future, tax audit notices are to be issued by the end of the calendar year following the year in which the tax assessment notice became effective. 

If this deadline is not met, the new five-year period for the expiry suspension set out in Art. 171 (4) AO nevertheless begins on the aforementioned date. This means that the tax authorities lose the option of delaying audits “almost indefinitely”. Companies benefit from this and can better prepare for the tax assessment. This regulation helps to speed up procedures and prevents taxpayers from remaining in uncertainty about possible additional claims for years.

Absolute expiry suspension set at a maximum of five years

From 2025, the expiry suspension of tax audits for all taxpayers (even in non-advised cases) will be limited to a maximum of five years after the end of the calendar year in which the tax audit notice was announced. This is a significant step forward compared to the previous regulation, under which audit periods often remained “open” for much longer. This gives companies more planning security and allows them to prepare for a defined audit framework. However, the limitation of the expiry suspension pursuant to Art. 171 (4) sentence 3 does not apply if the tax audit is postponed or interrupted at the taxpayer’s request. In addition, the expiry suspension does not end if criminal proceedings are initiated, intergovernmental administrative assistance is used for at least one year or a fine for failure to cooperate is imposed (see below) before the deadline expires.

General conditions and meetings

From 2025, Art. 199 (2) AO creates a new basis for cooperation during tax audits. In future, companies and the tax authorities will be able to define binding framework conditions, including

• audit schedules,
• preferred communication channels, and
• regular meetings for coordination.

These measures are intended to make the audit process easier to plan and avoid misunderstandings. For companies, this means more control over the process and the ability to respond to requests from the tax authorities at an early stage.

Electronic audit reports as well as partial assessment notices and partial audit reports

With the introduction of Art. 180 (1a) AO, auditors will also have the option of issuing partial assessment notices for definable tax bases from 2025. This will be done ex officio or – if a significant interest is credibly demonstrated – at the request of the taxpayer. In cases in which a partial assessment notice within the meaning of Art.  180 (1a) AO is issued, partial audit reports must also be prepared in future. These, as well as a final audit report (the latter already since January 1, 2023), can in future be issued not only in writing but also electronically (Art. 202 (1) and (3) AO). This amendment facilitates the exchange between companies and the tax authorities and further reduces the administrative burden.

The advantage of partial assessment notices for companies: They receive clarity on specific audit areas at an early stage, which can significantly facilitate strategic planning. Investment decisions do not have to be put on hold until the conclusion of an audit, which can often take years.

The downside – stricter obligations to cooperate in tax audits and severe penalties

The new opportunities are accompanied by clear obligations – and these are tough. Companies failing to meet the increased requirements risk considerable sanctions.

Qualified requests for cooperation

From 2025, the tax authorities can specifically request additional documents six months after notification of the tax audit notice – with a deadline of just one month (Art. 200a AO). If this deadline is exceeded, there is a risk of severe consequences:

• A fine of 75 euros per day for failure to cooperate, which can add up to EUR 11,500.
• Further penalties of up to EUR 3.75 million can be imposed on uncooperative or solvent taxpayers.

This regulation shows that the tax authorities are increasingly relying on the taxpayers’ active cooperation in order to make audits more efficient.

Controversial innovation: extended correction obligations

This active cooperation is reflected in a particularly controversial amendment: the obligation to also apply audit findings to tax years that were not directly audited.

Specifically, unlike the “normal” correction obligation under Art. 153 (1) AO, taxpayers must independently and proactively check whether audit findings have an impact on tax returns already submitted for years that were not the subject of the tax audit and correct them. Positive knowledge of the need for correction is not required. If the necessary correction is not made, there is a risk of fines and criminal tax proceedings.
Example: If, in 2026, a tax audit limited to the year 2024 results in findings that also affect the 2025 tax return already submitted to the tax authorities, a possible correction for 2025 must be checked independently and – if necessary – implemented, even if 2025 is not or was not part of the said tax audit.

The new provision of Art. 153 (4) AO therefore significantly extends the notification and correction obligations and considerably increases the risk of sanctions.

Increased requirements for transfer pricing documentation

The requirements for international companies will increase further from 2025 (we reported). Transfer pricing documentation must be submitted within 30 days of notification of the tax audit notice – without an explicit request from the tax auditor (Art. 90 (4) AO). Failure to do so will result in a penalty of at least EUR 5,000. If the deadline is exceeded, a surcharge of at least EUR 100 must be taken into account for each full day of late submission (capped at EUR 1 million).

The central role of the tax compliance management system (TCMS)

The stricter requirements clearly show that a functioning TCMS is becoming even more helpful for companies. A TCMS fulfills several central tasks:

• Risk minimization: By systematically recording and controlling tax processes, companies can significantly reduce errors and penalties.
• Documentation: The increased reporting and verification requirements can be met efficiently with a well-structured TCMS.
• Efficiency gains: A TCMS not only reduces internal inefficiencies, but also tax risks and the duration of audits by enabling clear and transparent documentation.

A TCMS thus becomes a strategic management tool that not only minimizes risks, but also promotes better cooperation with the tax authorities.

Conclusion: Digital reform with side effects

The changes, which will apply from 2025 at the latest, mark a turning point in tax audits. Digitalization brings many advantages, including more efficient audit processes, greater transparency and clearer guidelines. At the same time, new obligations to cooperate and stricter sanction systems in particular will increase the pressure on companies considerably.