Taxing system drives Germans into arms of advisers
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Business has never been better at Knappworst and Partner, a tax advisory firm in Potsdam, a leafy city on the wealthy western outskirts of Berlin.
From its head office in the Villa Quistorp, the former residence of the local Soviet army commander, the company has seen turnover rise by about half in a decade.
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“There are still people who think they can get away with evading taxes,” says lawyer Stefan Donner, one of its 60-member staff. “But many more people are becoming more sensitive about following the rules.”
Against a background of increasingly complex tax rules in Germany, more international regulations and tax scandals — including the jailing of Uli Hoeness, former Bayern Munich football club president, this year for evading €28.5m in taxes — the country’s taxpayers are seeking professional advice. The number of tax advisers has grown by a fifth in the past 10 years to exceed 80,000.
“We pay a lot of tax in Germany,” says Clemens Fuest, a tax specialist at the Centre for European Economic Research in Mannheim. “There is a big sense that taxes should be fair. Unlike in some countries, nobody is admired for tax avoidance.”
As a result, there is wide public support for the role Berlin has played in boosting transparency and harmonisation in EU and global tax rules. Although it is not unique among governments in seeking to crack down on illegal and “unfair” tax practices, Germany has battled with particular enthusiasm.
Last month, Wolfgang Schäuble, the finance minister, piled pressure on Luxembourg and Jean Claude Juncker, the European Commission president, over controversial low-tax deals for multinationals such as Amazon, arranged when Mr Juncker was the Grand Duchy’s prime minister.
“We don’t want a unified tax law in the whole world,” said Mr Schäuble in a radio interview. “But we want to limit unfair competition.”
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This week, Berlin recruited France and Italy to the cause, with Michel Sapin, French finance minister, and Pier Carlo Padoan, his Italian counterpart, joining Mr Schäuble to call for an EU-wide law that would outlaw “aggressive tax planning” and close loopholes used by companies and member states to limit their tax bills.
Berlin in November persuaded the UK, Netherlands and Luxembourg to tighten tax favours granted to companies registering patents. And Germany was a prime mover in a global agreement on exchanging tax information signed this autumn in Berlin by 51 countries and endorsed by the G20 at its Brisbane summit.
The German attitude stems from a view of taxes as “contributions to the common good” rather than as charges imposed from on high, Prof Fuest says. Germany’s devolved political structure, with much public money spent at local and regional level, reinforces this view, according to other observers. In addition, most Germans believe theirs is a well-functioning state and so are prepared to pay for it and criticise those who do not, he adds.
Chancellor Angela Merkel’s government has responded to the public mood by tightening the rules under which Germans can reveal undisclosed income and pay tax arrears without facing fines, while allowing a period for taxpayers to reveal any arrears without penalty. The process has resulted in a surge in “confessions,” from 8,000 in 2012 to 26,000 last year and nearly 32,000 in 2014 to date, generating work for advisers.
Contrary to popular myth in Germany, the country’s taxes are not particularly high by European standards. Tax revenues were 39 per cent of GDP in 2012, in line with the EU average, according to official data.
However, as Mr Donner says, tax rules “are complex and even getting more complex”. Even individuals who might not seek tax advice in other countries — salaried employees, for example — often consult tax experts for advice on a bewildering range of allowances for everything from children to home insurance, at an annual cost of €500-€2,000 each.
As a result, many Germans are very aware of the size of their tax bills. — adding to their sensitivity to the tax situation elsewhere. “German taxes are not so high but many Germans think that in other countries like Luxembourg people can avoid tax,” says Mr Donner. They don’t think this is fair.”
