The tax audit: audit order, cooperation, data access and closing

A joinery with seven employees receives an audit order covering three years in March. The owner puts it aside, since the auditor is not coming until later. In the autumn a qualified request for cooperation lands on her desk, a year of bank statements is missing, and every full day of delay costs 75 €. What proved expensive was not the audit but the preparation that never happened.

Who may be audited, and how widely

The external tax audit, usually called a Betriebsprüfung in everyday German, is permitted under § 193(1) AO for everyone who runs a commercial, agricultural or forestry business or works as a self-employed professional. For this group the tax office needs no particular reason. An audit is not an accusation but a regular tool of assessment.

Other taxpayers, such as people who only let property or employees, may be audited under subsection 2 only in specific situations. That applies where they must withhold and pay over tax for someone else, typically as employer of a household help, or where their affairs need clarifying and an examination at the tax office would not be practical.

Section 194(1) AO draws the scope widely. An audit may cover one or more types of tax and one or more tax periods, but it may also be limited to individual matters. In a partnership it extends to the partners' affairs insofar as they matter for the uniform determination of the partnership's income.

Beyond that, § 194(2) AO allows the affairs of shareholders to be included in an individual case where this is expedient. Under § 195 AO the audit is carried out by the tax office that also assesses the taxes. It may, however, commission another tax authority, such as a specialised audit office, which may then issue notices in its name.

The audit order and its notification

Every external audit begins with an audit order. Section 196 AO requires it to be issued in writing or electronically and to carry an instruction on legal remedies. It is therefore an administrative act open to objection, for instance where the period is drawn too widely or the person does not belong to the group that may be audited.

Under § 197(1) AO the taxpayer must be notified of the order, the expected start date and the names of the auditors a reasonable time before the audit begins. The statute gives no fixed number of days. Notice is dropped only if it would jeopardise the purpose of the audit, and the taxpayer may waive the period.

If the date does not suit, § 197(2) AO helps. On application the start should be moved if important reasons are shown to be credible, such as an illness, the peak season or the absence of the person who keeps the books. Such an application does, however, have a side effect on the assessment period, which the second module explains.

Together with the order, the tax office may under § 197(3) AO require records that must be kept to be produced within a reasonable period. Where they were created with a data processing system, the data must be transmitted in a machine-readable format. Anyone who keeps digital books should therefore test the export in advance.

Once records have been produced, the intended focus areas of the audit should be communicated (§ 197(4) AO). That is valuable information for preparation. It does not, however, restrict the audit: the statute expressly says that naming focus areas is not a limitation to particular matters.

For notices based on returns prepared by a tax adviser within § 149(3) AO, § 197(5) AO sets the office a time frame. The order should be issued by the end of the year following the year in which the notice took effect. If it comes later through the office's fault, the maximum suspension still starts from that point.

Start, place and cooperation

On the first day the auditors must identify themselves without delay under § 198 AO, and the start of the audit is recorded in the file with date and time. That moment is no formality. The suspension of the assessment period depends on it, and so does the question whether a voluntary disclosure can still lead to exemption from punishment.

Section 199(1) AO obliges the auditor to examine the tax bases in the taxpayer's favour as well as to his detriment. A taxpayer who discovers his own error to his disadvantage during the audit, such as a forgotten depreciation charge, should therefore raise it. The audit is also where overpaid taxes are corrected.

During the audit the taxpayer must be informed under § 199(2) AO about facts established and their possible effects. The office may agree to regular meetings and, by mutual consent, set a framework for cooperation. If that framework is met, no qualified request for cooperation is issued, which makes such an agreement attractive to both sides.

The core of cooperation is described in § 200(1) AO. The taxpayer provides information, produces records, books, business papers and other documents, gives the necessary explanations and supports data access. If he cannot answer, if his answers are insufficient or promise no result, the auditor may also ask other employees of the business.

Under § 200(2) AO the records are to be produced on the business premises. If no suitable room exists, the home or the tax office come into consideration. A suitable room or workplace and the necessary equipment must be provided free of charge. Where the auditor works remotely on mobile devices, that counts as work at the tax office.

Under § 200(3) AO the audit takes place during normal business or working hours. The auditors may enter and inspect land and business premises, and the owner or his representative should be present. For preparation, a short list of what should be ready on the first day has proved useful.

• a contact person with authority who knows the books and the filing of vouchers
• the data export of the financial accounts for the years ordered, checked in advance for readability
• contracts with shareholders, relatives and major customers, together with the fixed asset registers
• bank statements for all business accounts, including those closed during the audit period
• a workplace with network access, away from ongoing customer meetings

Data access under § 147(6) AO

Where the records were created with a data processing system, § 147(6) AO gives the auditor three routes of access. He may inspect the stored data and use the system himself, he may require the data to be evaluated by machine according to his specifications and made available, or he may demand that they be transmitted in a machine-readable format.

If the data are held by a third party, such as the tax adviser's firm or a cloud provider, that party must grant access in the same three ways once the taxpayer informs the office where the data are located. By statute the costs are borne by the taxpayer, not by the third party and not by the tax authority.

If a business changes its accounting system or moves old data out before an audit has begun, it is sufficient, once the fifth calendar year after the changeover has ended, to keep the data only on a machine-readable and machine-evaluable storage medium. Until then the old system must continue to allow access.

How long books, vouchers and other records must be kept is covered in the course on bookkeeping obligations. What counts here is that retention ends not as a pile of paper but as an evaluable dataset. Anyone who first looks for the export on the day of the audit loses time that, as the next section shows, costs money.

The qualified request for cooperation

Since the modernisation of the external audit, the office has an additional means of pressure. Under § 200a(1) AO it may, once six months have passed since the audit order was notified, issue a qualified request for cooperation, in writing or electronically and with an instruction on remedies. It must be complied with within one month of notification.

The one-month period may be extended in justified individual cases. The request needs no further reasoning if the office has previously pointed out this possibility and cooperation was still not forthcoming. Anyone who receives such a notice should read it as a final warning.

If the request is not met on time or in full, § 200a(2) AO requires a delay penalty. It is 75 € for each full calendar day of delay, capped at 150 calendar days. The delay ends with the day on which the request is fully met, at the latest with the day of the closing meeting.

No penalty is imposed if the taxpayer credibly shows that the delay was excusable. The fault of a representative or assistant is, however, attributed to him. An overloaded adviser's office or a sick bookkeeper therefore only helps if their own delay was itself excusable.

A surcharge on the delay penalty of up to 25,000 € per full calendar day is allowed by § 200a(3) AO if a delay penalty was already imposed in the last five years, or if economic capacity calls for a stronger incentive. The statute presumes the latter in particular from revenue of 12 million euros.

For groups the threshold is consolidated revenue of 120 million euros. For a small firm, then, the repeat case is the real danger. Anyone who has once had a delay penalty remains for five years in a position where the next failure can cost many times as much.

The delay also affects deadlines. Under § 200a(4) AO the maximum duration of the suspension of the assessment period is extended by the length of the delay, and by at least one year. With a second delay penalty within five years that maximum duration falls away altogether. These rules apply to taxes arising after 2024.

Under Art. 97 § 37(3) EGAO the request, the penalty and the surcharge also apply to older taxes if the audit order was notified after 31 December 2024. That exception does not mention the deadline effects of subsection 4. An audit ordered in 2026 therefore brings the delay penalty into play for every year it covers.

Closing meeting, audit report and what applies afterwards

Under § 201(1) AO a closing meeting must be held on the result, unless the tax bases do not change or the taxpayer waives it. Disputed facts, their legal assessment and the tax effects are discussed there. With the taxpayer's consent, the meeting may also take place by telephone or electronically.

One sentence in the closing meeting deserves particular attention. Where criminal or administrative fine proceedings are possible, § 201(2) AO says the taxpayer should be told that their assessment is reserved for separate proceedings. If that remark is made, professional advice is needed at the latest now.

The result is recorded in the audit report under § 202(1) AO, with the findings of fact and law and the changes to the tax bases. If nothing changes, a written or electronic notice suffices. On application the report must be sent before it is evaluated, with an opportunity to comment within a reasonable time.

This application under § 202(2) AO is worth making almost every time. It costs nothing and offers the chance to correct arithmetic errors or misunderstandings before they pass into notices. Against the amended notices that follow, the objection remains available, and a separate course covers its deadlines and effect.

A shortened audit under § 203 AO is limited to the essential tax bases where regular audits do not appear necessary. Before it ends, the taxpayer must be told of intended departures. There is, however, no closing meeting and no right to receive the report before it is evaluated.

After the audit, finality changes. If a notice was issued subject to review and the audit finds nothing new, the reservation must be lifted under § 164(3) AO. And § 173(2) AO blocks amendments for new facts to notices issued on the basis of an audit, except in cases of evasion or reckless understatement of tax.

Additional tax from an audit on income, corporation, VAT and trade tax also carries interest under § 233a AO, which the calculator on interest on back taxes puts into figures. How an audited matter will be treated in future can then be fixed with a binding assurance, explained in the course on objections.