Germany: Real-time VAT reporting to combat tax fraud
26-point action plan to combat tax and financial crime
The German Federal Ministry of Finance on July 21, 2026, published a comprehensive 26-point action plan to combat tax and financial crime, aimed at addressing an estimated €100 billion to €125 billion annual tax gap resulting from tax evasion, fraud, illicit financial flows, and shadow economy activities. The initiative combines stricter enforcement measures, enhanced penalties, expanded data analytics capabilities, and new digital reporting obligations.
The action plan reflects a significant shift in Germany's approach toward tax enforcement and financial crime prevention, with implications for businesses operating in Germany and multinational groups with German tax obligations.
Key measures affecting businesses
Real-time VAT reporting system
One of the most significant measures is the introduction of an electronic VAT reporting system, under which businesses will be required to report transactions individually and in a timely manner. The government intends to implement real-time reporting obligations designed to identify VAT fraud schemes, including carousel fraud, more quickly and effectively.
This measure aligns with broader European trends toward continuous transaction controls (CTCs) and complements Germany's ongoing e-invoicing initiatives.
Extended record-retention requirements
The action plan proposes extending the mandatory retention period for accounting and booking documents—currently generally 8 or 10 years under German law—to 15 years.
Data localization requirements
Germany also intends to require companies based outside the European Union (EU) to maintain tax-relevant data on mirror servers located in Germany. The objective is to address ongoing challenges faced by tax authorities when accessing data stored abroad and to facilitate more efficient tax audits and investigations.
Mandatory electronic cash registers
To combat underreporting in cash intensive sectors, the government plans to further tighten requirements for electronic cash registers and related technical security measures. Building on existing German rules for tamper proof cash register systems, the new measures are intended to further reduce opportunities for manipulation and tax fraud in businesses where cash transactions remain prevalent.
Enforcement and penalties
Stricter penalties for tax evasion
Germany plans to increase the criminal penalties for tax evasion, including raising the maximum term of imprisonment for particularly serious and organized cases. Tax evasion is already a criminal offense under current law, but the government intends to tighten the sanction regime.
End of self-disclosure immunity
A notable change is the planned elimination or substantial restriction of the current framework for voluntary self-disclosure. While German law already imposes conditions and surcharges on self-disclosure today, the government believes that further reform is needed to ensure that serious offenders face appropriate consequences even if they come forward voluntarily.
Public register of convicted companies
The plan also includes the establishment of a public register for companies sanctioned for serious tax offenses, increasing transparency and potentially creating additional reputational consequences for noncompliant businesses.
Enhanced use of data analytics and artificial intelligence
Germany intends to strengthen its investigative capabilities through the creation of a Data Analysis Center as part of a new Joint Center Against Tax and Financial Crime. The initiative will facilitate broader interagency access to financial data and support the development of a centralized data platform.
Importantly, authorities plan to leverage artificial intelligence (AI)-enabled analytics tools to identify patterns in financial data, detect suspicious activities, and accelerate the identification of potential tax fraud cases.
Increased coordination among authorities
The action plan calls for the creation of a Joint Center Against Tax and Financial Crime, modeled after Germany's existing counterterrorism coordination framework. The center will bring together state tax investigators, federal enforcement agencies, analysts, and other specialists to coordinate investigations and share intelligence more effectively.
Additional measures include:
- Reorganization and strengthening of customs enforcement functions
- Reform of Germany's Financial Intelligence Unit (FIU)
- Enhanced cooperation with the European Public Prosecutor's Office (EPPO) in combating cross-border VAT fraud
- Expansion of international cooperation and joint investigations with foreign tax authorities
Judicial and institutional capacity building
Recognizing the growing complexity of financial crime cases, the government also plans to strengthen the institutional framework through:
- Enhanced training programs for tax court judges on financial crime, money laundering, and related legal issues
- Creation of specialized investigative expertise focused on financial crime and money laundering
- Expansion of whistleblower protection mechanisms and data acquisition programs to identify noncompliance more effectively
Business implications
The proposed measures signal a substantial increase in Germany's tax enforcement capabilities and a broader digitalization of tax reporting requirements. Businesses operating in Germany may need to closely monitor legislative developments, particularly those relating to:
- Real-time VAT reporting obligations
- E-invoicing and transaction-level reporting requirements
- Extended document-retention periods
- Data-localization rules for tax-related information
- Cash register compliance obligations
- Enhanced audit and enforcement activities supported by AI-driven analytics
As the action plan progresses through the legislative process, affected businesses may need to reassess their tax governance, record-retention policies, data-storage practices, and indirect tax compliance frameworks to ensure readiness for the upcoming changes.
Upcoming e-invoicing mandates? Read the KPMG e-invoicing developments timeline
For more information, contact a KPMG professional:
Christopher Böcker | cboecker@kpmg.com
Deepika Awaraddi | deepikaawaraddi@kpmg.com
Philippe Stephanny | philippestephanny@kpmg.com
Lyubov Skenderova | skenderova.lyubov@kpmg.com
Ramon Frias | ramonfrias@kpmg.com