Tax audits are becoming increasingly digital. Learn which data analysis tools the tax authorities use, what GDPdU and GoBD mean, and how to optimally prepare for a digital audit.
The Digital Tax Audit -- How the Tax Authorities Analyse Your Data
Tax audits have undergone a fundamental transformation in recent years. Where auditors once leafed through ring binders and examined receipts individually, digital analysis tools now stand at the centre of audit activity. The tax authorities can today sift through vast data volumes in minimal time, identify patterns and flag anomalies. For businesses, this means that anyone who does not have their digital accounting under control risks substantial additional tax assessments.
The Legal Framework: From GDPdU to GoBD
The GDPdU
The Principles for Data Access and the Auditability of Digital Documents (GDPdU) from 2001 established the first legal framework for electronic data access by the tax authorities. They regulated for the first time how the tax office may access the taxpayer's electronic data.
The GoBD as the Current Standard
The GDPdU were superseded by the Principles for the Proper Keeping and Storage of Books, Records and Documents in Electronic Form and for Data Access (GoBD). The current version dated 28 November 2019 sets comprehensive requirements for:
- Traceability and verifiability of the accounting system
- Completeness of all business transactions
- Accuracy of records
- Timely bookings and entries
- Order and immutability of data
- Retention for the statutory periods (generally 10 years for booking documents)
The Three Forms of Data Access
Under § 147(6) AO, the tax office has three modes of data access:
- Direct data access (Z1): The auditor accesses the taxpayer's IT system directly and can read, filter and sort data
- Indirect data access (Z2): The taxpayer evaluates the data by machine according to the auditor's specifications upon request
- Data carrier surrender (Z3): The taxpayer provides the data on a data carrier or digitally in a specified format
In practice, data carrier surrender (Z3) is used most frequently. The data must be in a machine-readable format -- typically CSV, XML or SAP AIS files.
The Tax Office's Audit Software
IDEA (Interactive Data Extraction and Analysis)
The most important tool for tax auditors is IDEA (Interactive Data Extraction and Analysis) software by Audicon (now Caseware). This software enables:
- Import of diverse data formats (CSV, Excel, XML, SAP, DATEV and many more)
- Sorting and filtering of large data volumes
- Statistical analyses and key figure calculations
- Duplicate checks to detect double bookings
- Gap analysis for sequential number ranges (e.g. invoice numbers)
- Benford analysis to detect manipulated figures
- Time series analyses to identify unusual trends
- Chi-squared tests and other statistical methods
The Benford Analysis in Detail
Benford analysis (also called first-digit analysis) is one of the most powerful tools in digital tax auditing. Benford's Law states that in naturally occurring number sets, the digits 1 to 9 do not appear equally often in the first position but with decreasing frequency:
- Digit 1: approximately 30.1 per cent
- Digit 2: approximately 17.6 per cent
- Digit 3: approximately 12.5 per cent
- Digit 9: approximately 4.6 per cent
If the distribution of first digits in the accounting data deviates significantly from this pattern, it is a strong indicator of manipulation. The auditor can then examine the relevant number ranges in detail.
Time Series Analysis
In a time series analysis, daily, weekly or monthly revenues are analysed over an extended period. Particularly conspicuous are:
- Unusual spikes or drops that cannot be explained by seasonal effects
- Regularly round amounts suggesting flat-rate estimates
- Conspicuous clusters of amounts just below threshold values (e.g. just under EUR 250 for small-amount invoices)
Typical Audit Focus Areas in Digital Tax Audits
Cash Register Data
Cash register auditing is a focal point of digital tax audits, particularly in cash-intensive industries (hospitality, retail, hairdressers). Since 1 January 2020, the use of a technical security device (TSE) has been mandatory under the Cash Register Security Ordinance. The auditor analyses:
- Cancellation rates: Above-average cancellations are an alarm signal
- Z-receipt gaps: Missing daily closings suggest potential manipulation
- Timestamps: Bookings at unusual times (e.g. after closing) are suspicious
- Manager functions: Frequent use of manager functions (e.g. retrospective price changes) is critically examined
Invoice Numbers and Document Series
Sequential number ranges are systematically checked for gaps. Missing invoice numbers may indicate unrecorded income and regularly trigger additional assessments.
Inventory Management Systems
For manufacturing and trading companies, inventory management data is analysed. The auditor reconciles purchasing and sales data and checks whether quantities sold are consistent with quantities purchased and inventory levels. Significant discrepancies indicate unrecorded purchases or unrecorded sales.
The Process Documentation as a Key Factor
Obligation to Maintain Process Documentation
The GoBD require process documentation that transparently describes how the accounting is organised. This documentation must cover:
- General description: Which systems are used? How are processes organised?
- User documentation: How are the systems operated? What access rights exist?
- Technical system documentation: What hardware and software is used? How are interfaces configured?
- Operational documentation: How are data backups performed? How is IT operations organised?
Consequences of Missing Process Documentation
If the process documentation is missing or incomplete, this may be regarded as a formal deficiency of the accounting. The consequence: the auditor may reject the regularity of the accounting and make their own additional assessments (§ 162 AO). In practice, however, missing process documentation does not automatically lead to rejection of the accounting if the accounting is otherwise proper. It does, however, significantly increase audit pressure.
Practical Preparation Tips
Before the Audit
- Create and maintain process documentation
- Test data exports regularly -- can you export your data in IDEA-compatible format?
- Check sequential number ranges for gaps and duplicates
- Implement TSE requirements for cash register systems and document compliance
- Comply with retention periods: All tax-relevant data must remain machine-readable throughout the entire retention period
- Document and implement an internal control system (ICS)
During the Audit
- Cooperative but not premature: Answer the auditor's questions factually, but do not volunteer information that was not requested
- Control data disclosure: Check precisely which data you disclose -- the right of access is limited to tax-relevant data
- Involve your tax adviser: Have your tax adviser present from the outset
- Keep records: Document all requests, data handed over and meeting outcomes
After the Audit
- Analyse the audit report: Carefully review the findings for their validity
- Consider objections: File objections against incorrect findings within the appeal deadline
- Optimise: Promptly rectify weaknesses identified in your own systems and processes
Current Developments: AI in Tax Auditing
The tax authorities are increasingly investing in artificial intelligence and machine learning. Current developments include:
- Risk management systems: AI-supported systems assess audit risk and prioritise cases automatically
- Pattern recognition in large datasets: Machine learning algorithms detect anomalies that would not be identifiable using conventional methods
- Automated validations: Routine checks are increasingly automated
- Mandatory e-invoicing: From 2025, mandatory e-invoicing in the B2B sector will further facilitate tax authority data access
Conclusion
The digital tax audit presents businesses with new challenges. The days when one could rely on the tax office's limited audit capacity are over. Comprehensive documentation, GoBD-compliant systems and clean data quality are no longer optional extras but mandatory requirements.
Businesses that take their digital accounting seriously and proactively prepare for tax audits have significantly better prospects of passing the audit without material objections. Investing in proper systems and processes pays dividends many times over during a tax audit.
At compleneo, we support you in designing your accounting systems to be GoBD-compliant, creating process documentation and accompanying you through tax audits. Our tax advisers combine specialist tax knowledge with digital expertise and stand by your side in all phases of the tax audit.
