The draft federal budget for 2027 with its estimated income and expenditure is alarming. With expected spending of around 555 billion euros, Germany will have to take on around 200 billion euros in new debt next year.
No wonder that the federal government is thinking intensively about ways to increase revenue. It quickly became about the billions the government loses every year to financial crime. Although there are no official figures, experts estimate the damage at 100 to 200 billion euros per year.
Even if only a small part of this could be offset by more effective controls and tougher penalties, it would still be a big help for federal, state and local governments, whose budgets are financed almost exclusively from tax revenues.
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Police, tax investigators and customs authorities should work together
“The majority of citizens in this country pay their taxes without question, unconditionally and without much fuss,” said Federal Justice Minister Stefanie Hubig in Berlin. “But there are also those who hide their income from the tax authorities.”
This ranges from illegal employment to offshore tax havens, shell companies, slush funds and many other fraudulent practices.
Together with Finance Minister Lars Klingbeil, Hubig has developed a 26-point action plan to better combat tax fraud and money laundering. She also announced plans to establish a “Joint Center Against Tax and Financial Crimes” within the customs authority. A total of 1,500 new positions are planned to focus on the investigation, analysis and prosecution of money laundering and tax crimes.
Tax evaders “cannot get away scot-free”
“A central component of the center will be a new data analysis center,” said Klingbeil. “Artificial intelligence will help sift through large amounts of data, decipher complex corporate structures and better identify frontmen.”
Tax investigators from the states, the Federal Criminal Police Office and financial investigators from the customs office want to work more closely together on major cases.
“Nobody should be able to rely on not getting caught,” said Klingbeil. “We cannot allow honest people to lose out while tax evaders line their pockets with illegal tricks – they cannot get away scot-free.”
But this is exactly what has been happening in Germany for a long time. Take, for example, the so-called Cum-Ex scandal. For more than a decade, the government allowed multiple refunds of capital gains tax on stock dividends that had been paid only once or not at all. As recently as 2011, the scandal led to numerous investigations, lawsuits and political debates about the responsibility of banks, investors and regulators.
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Could tax evaders simply pay back taxes?
Another frequently discussed topic is the possibility of voluntarily reporting tax evasion in exchange for impunity. This practice has been permitted in Germany since 1919.
The idea is to encourage taxpayers to voluntarily disclose previously hidden income so that the government can collect the taxes owed. This arrangement gained enormous importance starting in 2008, when authorities began uncovering more and more Germans who were maintaining anonymous bank accounts abroad to hide assets from taxation.
In 2011 and 2012 alone, around 30,000 self-disclosures were made after German tax authorities purchased several “tax CDs” containing German customers’ data from Swiss banks. Those who feared being caught preferred to go to the tax office themselves, open their accounts and pay the outstanding taxes. Self-reporting with immunity from prosecution has always been a thorn in the side of the center-left Social Democratic Party.
“Criminals should no longer be able to buy their way out of the crisis so easily,” said Klingbeil.
Plans to confiscate Porsches and Rolexes
Together with Hubig, Klingbeil is also pushing for harsher punishments. The maximum penalty for organized crime in connection with tax fraud is to be increased from 10 to 15 years in prison. In addition, serious tax fraud will be reclassified and punishable by a prison sentence of at least one year.
Klingbeil and Hubig’s action plan also provides for more opportunities to confiscate assets obtained through dubious means. Previously, such seizures were only possible after evidence of a specific crime, such as money laundering, had been found and a criminal conviction had been obtained.
In the future, customs authorities will be able to confiscate assets for 180 days. “The Porsche and the Rolex will be gone for the time being. That will hit the perpetrators really hard,” said Klingbeil.
Those affected would then have to prove that they legally acquired the assets.
Cryptocurrency deals under scrutiny
New regulations will also be introduced for the purchase and sale of cryptocurrencies. They are currently tax-free if there is more than a year between purchase and sale. That will change.
“We will also introduce blockchain analysis,” said Klingbeil. “Digital tax crime is increasingly evading traditional investigation methods and we must respond to this.”
But the government also wants to take a closer look at the traditional business world – especially where large amounts of cash are passed over the counter. From 2028, all people with an annual turnover of more than 100,000 euros will be required to have a cash register. This would affect jewelry and antique dealers, for example.
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1 billion euros in additional sales are expected for 2027
The action plan should now be implemented into law as quickly as possible. The first results should be available in August.
Klingbeil has already planned for new income in its budget planning for 2027. He estimates that the fight against tax crime will add an additional 1 billion euros, but expects the total to be significantly higher.
The non-governmental organization Finanzwende welcomed the new plans and praised the efforts to combat tax fraud more seriously and vigorously. Now a press release states that these plans must be followed by action.
This article was originally written in German.
https://www.dw.com/en/germany-cracks-down-on-money-laundering-tax-fraud/a-78011524
