Finance Ministry intends to ramp up efforts against tax evasion
In an effort to bolster the country's financial integrity, German Finance Minister Lars Klingbeil has unveiled a plan to strengthen measures against tax evasion and the black market. The proposed reform, outlined in an internal draft law from the Federal Ministry of Finance titled "for the modernization and digitalization of combating the black market," aims to safeguard tax revenues that currently face significant losses, particularly in the banking and multinational corporation sectors.
The draft law, reported by the Handelsblatt (Friday edition), which has seen the draft, includes several key measures. For instance, the retention period for accounting records will be extended back to ten years to aid investigations, reversing a previous shortening to eight years. The Finance Ministry is also reviewing other necessary measures to protect the tax base and fight tax evasion and avoidance, including tougher enforcement and safeguarding fiscal records.
The reform is expected to result in higher detection rates and more successful investigations. To this end, the draft law proposes improvements in the collection and processing of tips and information from the FKS for more effective inspections. The expansion of the list of sectors particularly affected by black market work and illegal employment is also intended to improve the inspection situation for the FKS.
The financial sector and large corporations are key targets of these measures, alongside expanded scrutiny of fiscal records across other economic sectors to close tax avoidance gaps. Sectors such as the hairdressing and cosmetics industry are among those to be included in the expanded list.
The federal government expects to generate an additional 280.5 million euros for the federal budget from 2026 to 2029 due to the reform. The majority of the 2029 additional revenue, 538.7 million euros, will go to social insurance. The states will benefit from 188.2 million euros, while the federal government's additional revenue in 2029 will be 131.5 million euros. However, additional costs of around 465 million euros are expected in the first four years after the law comes into effect.
The draft law aims to strengthen the financial control of the black market (FKS) and adapt the list of sectors particularly affected by black market work and illegal employment. While no exact budget or revenue increase estimates are given for this specific plan, the broader fiscal context underscores the urgency of these reforms. The government's overall budget for 2026 includes intensified enforcement against tax fraud and financial crime, as part of addressing a medium-term financial deficit projected between 2027 and 2029, which is expected to exceed €30 billion due to rising interest obligations and other fiscal pressures.
The federal government declined to comment on the figures due to the ongoing interdepartmental consultation. Nevertheless, the potential revenue from these reforms could significantly offset the projected deficit, making a strong case for their implementation. The reform, if approved, is expected to have a profound impact on the country's financial landscape, potentially recouping billions of euros in lost tax revenues and bolstering the government's fiscal position.
The Finance Ministry's draft law, aimed at strengthening the Financial Control of the black market (FKS), includes measures specifically targeting the financial sector and large corporations to reduce tax avoidance. A significant portion of the additional revenue generated from this reform, projected to be 280.5 million euros from 2026 to 2029, will be allocated to social insurance, demonstrating the interconnectedness of business and finance in the proposed reform.
