Tax avoidance Cash Register Fraud Plans Fail to Checkout

Germany's finance ministry wants to crack down on tax evasion by businesses who cheat at the cash register, but critics say the proposal is too little, too late.
Fraud at the point of payment may be costing Germany billions.

Germany’s 16 state finance ministries have long urged finance minister Wolfgang Schäuble to crack down on tax fraud at cash registers.

Now Mr. Schaüble, a member of chancellor Angela Merkel's center-right Christian Democrats, has presented a draft bill that would require security technology in all electronic cash registers. If it passes the two houses of parliament, all 2.5 million cash registers in Germany would have to be updated by 2019.

The finance ministry estimates it will cost €400 million, about $450 million.

“It’s high time for action,” said Norbert Walter-Borjahns, the state of North Rhine-Westphalia’s finance minister and a member of the center-left Social Democratic Party, or SPD, which is the junior partner in a federal coalition government.

According to tax fraud investigators and manufacturers of electronic point of sale systems, more and more retailers use cheat software to evade taxes. After prices are entered, they calculate lower sales totals or delete some items, on which taxes aren’t paid.

It’s a competitive disadvantage for honest businessmen. Norbert Walter-Borjahns, NRW finance minister

In the food service sector, for example, tax investigators in the state of Lower Saxony uncovered cheat software in 17 percent of businesses audited in 2014.

The Federal Audit Office has warned of the tax loophole since 2003 and criticizes a system-wide lack of enforcement.

Cash register manipulation not only results in not paying value added taxes, but also in restaurant and bar owners paying their waiters under the table to get around minimum wage requirements and to avoid paying for social benefits.

Andreas Schwarz, the SPD's financial expert, is outraged. “Honest businessmen who pay their taxes and properly pay their employees are being cheated,” said Mr. Schwarz, who runs a toy store himself.

He said business owners have come to him asking for the something to be done about the “massive fraud.”

“It’s a competitive disadvantage for honest businessmen,” he said.

SPD and Green Party politicians estimate the extent of the fraud to be at least €10 billion annually. But the federal finance ministry says that figure is highly overstated.

“There are cases of manipulation,” ministry officials admit. But estimates not based on data should not be taken seriously, they added.

Now they say the ministry has developed a technologically open procedure, working with the Federal Office for Information Security, or BSI.

The new procedure will set in law what the security technology should accomplish, while the information security office defines this in detail and certifies the technology. If hackers break into the system, the BSI could demand recertification.

Since 2012, state finance ministers and the German taxpayers association have instead focused on “cryptographic tamper-proof” cash register technology developed by the German National Metrology Institute. They want to make it mandatory.

The German cash register industry association says all manufacturers could already be using this technology today. Its chairman, Roland Ketel, demands mandatory installation of the security technology. All too often, he said, customers ask for suitable cheat software when they order new point of sale systems.

Critics, however, consider the cash register association’s chip technology to be outdated. The key would be issued centrally by the Bundesdruckerei, the German company that makes banknotes, stamps, driver’s licenses and passports. That, critics say, raises the threat of an investigation of state aid by the European Union.

The ruling Christian Democrats and their conservative Bavarian allies in the Christian Social Union, along with the their junior coalition partner the SPD, have now agreed in parliamentary groups not to get involved in the technology debate.

“We don’t want to prescribe a system — only ensure that it's workable for companies and tax inspectors,” said Lothar Binding, finance policy speaker for the SPD parliamentary group.

Still, conflict is guaranteed because the Social Democrats still demand a mandatory cash register rule for all retailers, restaurant and bar owners, and other cash operations. The only exception would be smaller businesses with sales of less than €17,500 a year.

But the federal finance ministry rejects that option because the state would have to monitor the requirement — and they don’t have enough staff.

Mr. Schäuble prefers a cash register inspection. That would allow tax investigators to carry out unannounced inspections of recent sales, without having to go into a complete audit of operations.


Donata Riedel covers economic policy for Handelsblatt. To contact the author: [email protected]