Drinking money

Germany’s pubs keep beer flowing by evading taxes

Bier in Frankreich
An awfully cheeky beer. Source: dpa

Germany’s local pubs might not all brew beer, but they sure are brewing trouble. They have mastered the art of evading taxes to keep their lights on and beer taps flowing. And the country’s tax authorities want it to stop.

It is an open secret that the country’s bar sector has a black money problem, with many businesses not declaring all of their income. Germany’s audit office estimates that “cash-intensive industries,” like pubs, taxi services, hair salons and even ice cream parlors, skimp on up to €10 billion a year in taxes, with the food and drink sector the main offender.

The taxman found that reported sales are manipulated by 30 to 50 percent in the sector. It is easy to do if there is no cash register – traditional or electric – to record transactions. And even electronic registers can be reprogrammed to show false figures.

In an attempt to hold bars accountable, a new law has been passed requiring all point of sale (POS) systems to be equipped with a certified security chip by 2023. That would make sure that a logged entry cannot be changed or deleted after being punched in.

In 2014, 94 percent of all sales in German cafés and pubs, snack bars and fast food restaurants were paid in cash.

But there’s a crucial step missing: No one is obligated to use an electronic register, making the law irrelevant for cash-in-hand businesses. And with margins in the pub business already so low that the number of bars fell from 37,000 in 2008 to 31,000 in 2015, there is zip, zilch, zero incentive to become a law-abiding publican. Except for maybe a guilty conscience.

And that’s unlikely to change. In 2014, 94 percent of all sales in German cafés and pubs, snack bars and fast food restaurants were paid in cash. In restaurants, that proportion was 70 percent. In a cash-loving country, there is little hope that the figure will dip significantly any time soon. But the tax authorities’ job has become a bit easier: As of 2018, they can spontaneously pop into any pub, not for a quick drink, but to check receipts.

While it matters little to pub-goers whether they pay cash for their Weizenbier or with credit card for their Guinness, it’s a big deal for tax authorities. Cash is a very slippery slope to tax evasion.

A version of this story originally appeared in our sister-publication WirtschaftsWoche. To contact the author: c.coester@handelsblattgroup.com

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