A field tax audit is far from being the most pleasant event for a company. So you’d better prepare for in advance.
Given below are the reasons why your organisation may arouse interest of the tax authority:
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you carry out transactions with a high tax risk;
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over several tax periods, you have indicated losses in the accounting and tax reporting statements;
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your costs are growing faster than revenues;
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your staff’s salaries are below the average level at companies involved in a similar type of business in the same constituent entity of the Russian Federation;
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you have entered into contracts with intermediate counterparties or resellers without good reason (business purpose);
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over a short period, you included significant tax deductions in your tax statements;
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you have repeatedly moved among tax authorities because of relocations (repeatedly had your company deregistered and re-registered with tax authorities);
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your tax burden is below the average in a particular industry;
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you have serious differences in profitability between accounting and market statistics;
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the tax authority has notified you repeatedly, but you never responded;
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you have come and again approached the limiting value of indicators rendering a taxpayer eligible for special tax regimes (the indicators are established in the RF Tax Code).
You have received a decision on field tax audit. What should you do?
To begin with, verify that the audit is legitimate. Also make sure the tax office’s decision contains the following:
- list of taxes whose calculation the tax office intends to audit (tax authorities may not conduct two or more field audits with respect to the same taxes over the same period);
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your organisation’s operation period to be audited (should not exceed three calendar years);
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list of the auditor’s staff to be provided with access to your company site.
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Please note that the field tax audit period starts on the audit decision day, regardless of the day when the organisation’s representatives read it.
After you receive the decision, set up a calendar in which to record the audit period. It may not take more than two months. However, the initially specified period may be extended to four months and, in special instances, to six months.
Before handing over documents for auditing, review them carefully. Make sure all the papers contain requisite details, conform to approved forms and are not contradictory. When submitting documents, draw up detailed inventories specifying individual characteristics of each document. You will thus protect yourself from coming across a reference in the report to the papers that have not been submitted to the auditor.
The FTSI head or his deputy may suspend the audit at any time. This may be due to the need of obtaining further information from your counterparties or conducting an additional expert review. Auditors may also need information from foreign public authorities. Or else the tax authority may need time to translate the documents that the auditors received in a foreign language.
If the audit is suspended, the tax office may not require from you any documents or access to your company site.
The FTSI may suspend a field tax audit more than once. The overall suspension period for a field tax audit on any grounds may not exceed six months.
The maximum period for a field tax audit of an organisation may be 12 months, taking into account extensions and suspensions.
Under no circumstances should you let the auditors have access to the accounting software; nor should you print out accounts and registers data in the auditors’ presence. Requested data may be transferred in any format, not necessarily in excel.
Field tax audit completion
On the last day of a field tax audit, the auditor must draw up a certificate and record the audit item and duration there. Once completed, the document must be handed over by the auditor to you or your representative.
The tax authority must abide by the field audit results documenting rules set out in applicable Russian laws.
The tax authority’s officers must not only establish offenses, but also document them properly. Within two months of the tax audit certificate date, the tax authority must compile a tax audit report in the prescribed form.
It is important, before an audit, to learn your rights and obligations. Taking advantage of the company staff’s unawareness, auditors often ask them to prepare additional reports, summaries and other extracts. The FTS of Russia notes that tax authorities have no right to request reports or analytical statements that are not accounting source documents. Remember that all requests of auditors must be recorded in writing, as a minimum.
After receiving what seems a suspicious request, do not rush straight away to your upper management to complain, but do not pander to the auditor either. Just let auditor see that you know your rights and will act only under the RF Tax Code.
If you notice any violations committed by auditors, be sure to document them to prepare a body of evidence for a potential subsequent recourse to a court or a higher body.
It is important to keep in mind that, under cl. 14, Art. 101 of the RF Tax Code, failure of tax authorities’ officers to meet the requirements established by the RF Tax Code may be a ground for a superior tax authority or court to cancel a tax authority’s decision.
If the tax authority lets you have access to the process of reviewing tax audit materials, issues a notice of reviewing field audit materials to an unauthorised person, or fails to have the field audit report signed by you, the superior tax authority or court may cancel the tax authority’s decision.
