Running a business today means living with two realities: the ever-present demands of tax compliance and the strict rules of data protection under the General Data Protection Regulation (GDPR). Many founders and finance teams think of these as separate worlds. But in truth, tax and GDPR are deeply intertwined—and overlooking this connection can cause serious risks.
If you’re handling your company’s finances, it’s crucial to understand how personal data flows through your tax processes and how to keep that data secure. Let’s explore why tax data matters under GDPR and what practical steps you can take to protect both your business and the people whose data you hold.
Why Tax Data Falls Under GDPR
Many people think of GDPR as a regulation that mostly concerns marketing, customer data, or online privacy policies. But financial records—especially tax-related documents—often contain significant amounts of personal data.
Consider your typical tax documents: payroll reports list employee names, salaries, and bank accounts; invoices might include freelancers’ addresses and tax IDs; expense reports often reveal individual details about trips, meals, and purchases. Even internal communication about tax matters can carry personal information that falls under GDPR’s definition of personal data.
Under GDPR, personal data is broadly defined as any information that can identify a person, directly or indirectly. So, a tax file with someone’s name, salary, or tax identification number absolutely counts. If mishandled, this data can expose your company to fines, reputational damage, and significant operational headaches.
The Tension Between Retention and Deletion
One of the unique challenges businesses face is balancing GDPR’s rules about data minimization and deletion with tax laws that require records to be kept for years.
For example, in Germany, tax-relevant documents usually must be retained for ten years. Payroll records, depending on their nature, might require storage for six years or longer. At the same time, GDPR emphasizes that personal data should not be kept longer than necessary for its purpose.
This creates a tension: GDPR tells you to delete data as soon as it’s no longer needed, but tax regulations force you to hold onto certain documents for a decade or more. The solution lies in having clear internal policies that justify why data is retained and ensure it’s securely stored for the legally required period—and then properly deleted when it’s no longer necessary.
Where Tax Data Lives—and Why That Matters
In many startups and growing businesses, tax-related data is scattered across different places: email threads with tax advisors, paper folders stored in office cabinets, digital files in cloud storage systems like Google Drive or Dropbox, and various accounting or payroll software platforms.
Each of these locations carries risks if not properly secured. Physical documents can be lost or accessed by unauthorized staff. Emails are vulnerable to being accidentally forwarded or intercepted. Cloud storage, while convenient, requires strict access controls to prevent breaches.
It’s important to remember that GDPR applies equally whether data is stored digitally or on paper. Businesses are responsible for keeping tax data safe wherever it resides.
Practical Strategies for Keeping Tax Data Safe
So how can businesses manage this complexity in a practical way? It comes down to a few core principles: knowing what data you hold, limiting who can access it, securing the systems where it’s stored, and maintaining clear documentation of your processes.
Start by mapping out your tax data. Identify which documents contain personal information, where they’re stored, and who has access to them. Many companies are surprised to discover how much sensitive data is hidden in routine financial workflows. For example, a single expense report might reveal personal addresses, credit card numbers, and detailed travel plans.
Next, tighten access controls. Not everyone in the company needs access to payroll records or sensitive financial documents. Use software tools that allow you to assign permissions and track who opens or changes files. For physical records, lock filing cabinets and restrict office access where necessary.
Equally important is choosing digital tools with strong security standards. Modern accounting, payroll, and document management systems often offer built-in encryption, multi-factor authentication, and activity logs. Make sure your software providers comply with GDPR and that you have Data Processing Agreements (DPAs) in place with them. These agreements spell out how your vendors handle personal data on your behalf and what security measures they follow.
Don’t overlook training. Many data breaches happen because of human mistakes rather than sophisticated hacks. Team members should know how to handle sensitive financial data, recognize phishing attempts, and avoid casually sharing files over unsecured channels like personal email or messaging apps.
Dealing with Data Subject Rights
Under GDPR, individuals have rights regarding their personal data. They can ask to see what data you hold about them, correct inaccuracies, or even request deletion in certain circumstances. While tax data often has to be kept for legal reasons, it’s essential to be prepared to respond to these requests quickly and clearly.
For instance, if an employee asks for a copy of all payroll data you hold on them, you should be able to provide it promptly, while explaining any parts you’re legally required to retain for tax purposes. Keeping your records organized makes this far easier.
A Proactive Approach Prevents Problems
In the busy day-to-day of running a business, it’s easy to push data protection concerns aside. But tax-related data is too sensitive—and the consequences of mistakes too significant—to leave to chance. A proactive approach protects not just your company’s compliance record but also your reputation with employees, clients, and investors.
At its core, keeping tax data safe under GDPR isn’t about adding bureaucracy. It’s about understanding where your sensitive data lives, treating it with care, and ensuring it doesn’t become a liability lurking in the background.
Final Thoughts
Tax compliance and GDPR compliance are two sides of the same coin for modern businesses. They may seem like separate concerns, but they overlap in critical ways. Financial documents carry personal information that must be protected with the same care you’d give to customer data or product analytics.
As regulations tighten and expectations for data privacy grow, companies that manage this intersection well will save themselves stress, avoid legal trouble, and build stronger trust with their stakeholders.
Staying on top of both tax obligations and GDPR requirements may not be the most glamorous part of running a business—but it’s an investment in your company’s long-term stability and credibility.
