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How to avoid unnecessary inspections by the tax inspectorate and what to do if they do come: expert advice and a checklist for a scheduled inspection

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2/23/2023

If you submit reports and pay taxes in due time is this a guarantee that the tax inspectorate may have no questions for your company? 

For more than 4 years we have been working with companies from different industries. It has been our experience that it is not enough to transfer money to the budget on time and in full.

We have collected recommendations from our experts, following which you will reduce the likelihood of an inspection of your company.

We've also compiled a checklist for a scheduled audit in case it can’t be avoided. It contains practical advice based on the experience of Jara Accounting experts.

Ways to avoid unnecessary tax inspections

Prepare and keep documents confirming expenses in a correct and timely manner. 

The tax authorities may find the expenses unreasonable and recalculate the amount of tax payable if an auditor has doubts.

It is important to have clear wording of the purpose of payment in payment orders that corresponds to the kind of activity of the company and the agreement concluded between the contracting parties. 

If you pay for a service, be sure to obtain a report of work performed by the contractor, signed by authorised persons. If the report is signed under power of attorney, a copy of this power of attorney must also be attached to the documents.

If you bought goods, you need a waybill. Also, do not forget to check whether the counterparty issued an invoice and uploaded it (an invoice and a waybill) on the tax portal. 

If the counterparty is not a VAT payer, an invoice must be uploaded to the portal.

Monitor your business performance

Too low profitability, salary not corresponding to the average salary in the business and low tax burden, expenses significantly higher than the income for which VAT reimbursement is required - all this is subject to inspection by the tax inspectorate.

Check your counterparties

If you carry out calculations between related companies at prices inconsistent with market prices or use companies with preferential tax treatment to obtain a tax benefit, you may be suspected of tax evasion that is fraught with audits and blocking of the company's accounts currently.

Before entering into contracts, carefully check the counterparties with which you plan to do business. 

Respond to the demands of tax authorities

You must respond to all tax inquiries on time, otherwise, you are in danger of worsening the situation. 

Entrusting the accounting of your company to specialists of Jara Accounting, you don’t need to worry - we handle requests from tax authorities and prepare replies to the demands, thereby reducing the probability of inspection.

A checklist for a routine inspection: what to do if they came to you

Designate a separate room for the inspectors to work in to prevent them from meeting with employees and customers. 

Instruct employees on how to behave with the inspectors, and what they are allowed to say and not say. You do not hide anything, but employees may not understand any question, get scared and give an incomplete answer, which may necessitate a rebuttal. 

Ideally, only the director, lawyer, and accountant communicate with tax authorities. 

Provide the inspectors only with the documents requested by them. Providing more documents, more often than not, leads to additional questions.  Before providing them with documents, check for all necessary signatures and stamps.

Try not to be nervous, and communicate calmly with the inspectors. They carry out their job and are generally very loyal to the company. 

Do not sign blank forms and documents if you do not agree with their texts. Be sure to indicate the clauses you disagree with and the basis for your refusal to sign.

The ideal situation is when the tax authority does not come with an audit. This can be achieved by paying taxes on time and in full, by ensuring order in document flow and bookkeeping. Professionals with experience in your field can help with this.

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