Following the announcement of Germany's Annual Tax Act, which proposed several critical tax amendments, the Ministry of Finance, together with the Federal Ministry of Justice and Consumer Protection, presented the action plan against tax and financial crime. The plan includes dozens of measures focused on developing more effective and better-networked financial and investigative authorities, pooling the expertise of federal and state governments, analyzing data, and increasing deterrence and the risk of detection.

How Germany Plans to Combat Tax Crime

One of the key steps towards strengthening its fight against tax and financial crime is establishing a Joint Center against Tax and Financial Crime with Customs Services. The Joint Center will bring tax investigators from Germany’s federal states and customs financial investigators under one roof, and enable a more coordinated approach to investigating, sharing information, and combining expertise.

A second major step is to launch a Tax Authority's Data Analysis Center that will allow federal and state authorities to access and analyze tax information across agencies. The Data Analysis Center will consolidate all relevant data on a central platform, enabling investigators to identify links between taxable persons, transactions, and potential fraud schemes more efficiently. 

AI-based analytical tools will be developed to detect suspicious patterns in financial data. Also, a new VAT reporting system will be introduced to combat VAT fraud, particularly fraudulent refund claims and missing trader schemes.

Other measures include extending the retention period for accounting records to 15 years and requiring storage of tax-related data on mirror servers located in Germany. Additionally, a mandatory electronic cash register system will be introduced for cash-intensive industries to reduce undeclared sales and cash-based tax evasion.

Germany also plans to increase penalties for organized and particularly serious cases of tax evasion. This includes raising prison sentences for severe cases of organized tax crime to 15 years and reclassifying serious tax offenses as felonies requiring a minimum prison sentence of one year. Furthermore, tax audits will increasingly rely on a risk-based approach supported by better data analysis. Instead of applying the same level of scrutiny to all businesses, authorities will use improved data sources to identify taxable persons with higher risk indicators.

Conclusion

The German Federal Government’s action plan against tax and financial crime forms part of a broader strategy to strengthen tax justice, combat illegal economic activity, and improve enforcement capabilities. Alongside the tax crime reforms, several additional measures are being introduced to enhance the capacity of authorities responsible for investigating financial misconduct. Taken together, these measures should make it more difficult for criminals to hide illicit funds, exploit labor markets, or use international financial channels to avoid detection.