Tax Audit Procedures After Decision For Audit

The decision to conduct a field audit can be taken in order to verify whether the taxpayer has correctly fulfilled the obligations for VAT.

The obligations of the audit section after the audit decision has been taken are listed below:

Preparation of audit program

Preparation of audit program should clearly and concisely contain the following requirements: - Name and Taxpayer Personal Identification Number of taxpayer to be audited; - Object of the audit program; - Audit goals and expectations; - Legal and sub-legal framework to be checked for observance; - Type of audit; - Period to be audited; - Deadline for conducting the audit; - Audit team and head of audit team;

According to the organizational structure, the audit program is reviewed and approved by the head of audit section, head of Tax Audit Directory and finally signed and sealed by Head of Regional Tax Directory (RTD).

Audit notice

The audit notice and appointment of auditors to audit large taxpayers is issued in compliance with the form available Tax Audit Manual. Usually, the standard Form is used to order the beginning of an audit. The audit results can be changed according to the standard Form.

The main rule to follow is that audit notice should be sent to taxpayers by mail to the taxpayer's address, which is not a special tax address. The taxpayer's official address is the address registered in the national register for the taxpayer in question or the special mail address the taxpayer has declared at the moment of registration.

Exclusion of documents

It is important to especially underline this element in the audit notice, which should contain information about how to request the exclusion from audit of certain documents or information classified as "state secret" or "industrial secret".

Scope of audit notice

The audit notice regulates everything to be audited. RTD cannot audit periods following the date of the audit notice. This means that an audit notice to check fulfillment of the obligation to file tax declarations and provide complete and accurate information can only be applied for obligations occurring during the period up to the date of the audit notice.

In special cases the audit may cover periods before the usual assessment for delays in fulfilling tax obligations. For example, it would be appropriate to audit previous years when it is impossible to assess delays or extra tax, in the case of big tax frauds as well as when auditing the depreciation basis covering the years for which the tax is being changed.

If RTD intends to audit other time periods, different from what is covered in the audit notice, RTD should ask a request in Risk analysis section of General Taxation Directorate and after is approved from this unit RTD can issue an audit notice for the period in question.

If the purpose of the audit is to check the existence of conditions to comply with the obligation to provide information for the expected realization (ongoing year), the audit will include only those time periods in which the obligation to submit the tax declaration does not start before the date of the audit notice. An audit notice intended to obtain valid information to audit compliance with third party obligations (audits of third parties) only covers time periods up to the date of the audit notice.

Change of consequences

If the purpose of the audit is to check compliance with requirements related to VAT, such audit cannot address other taxes, for example, salary tax and withheld tax, or income tax. However, if the results of the audit on salary tax and withheld tax affect the amount of other taxes, it is evident that LTO should act (such case is known as change of consequences).

Since the audit notice only instructs on everything to be audited, it is not necessary to change the notice if the changes made for one tax or tariff affect another tax or tariff. In the audit memo, the auditor should write the consequences pertaining to another tax or tariff or make sure that they are corrected by other means.

Conducting audit in compliance with code of ethics and professionalism

As part of the public sector, RTD is obliged to respect the code of ethics. This code should be observed by the auditors, heads of section and tax audit Directory and Head of RTD as well as by all other employees working in the tax administration. This code foresees the development of rules of ethics based on the characteristics, culture, legal system and environment in which audit structures operate. The purpose of observing the code of ethics is to make taxpayers audited by RTD confident in the integrity, justice and objectivity of the tax audit.

Concluding meeting with taxpayer

In addition to submitting a report, the auditor agrees with the audited party as to the time and organization of the concluding meeting, within the 5-day deadline from submission of the comments part done by taxpayer against the findings in draft report. The auditor should inform the Head of RTD about this. As a rule, participants in the concluding meeting include the manager of the audited company and other interested representatives, as well as the auditors and heads of office and section. In special cases and requested by the head of section, the Head of RTD can also take part in such meetings. In the concluding meeting the parties present their arguments and counter arguments to the auditors' opinions expressed in the report and try to clarify all the details of the report

In the concluding meeting the heads of audit teams write down all the objections and clarifications according to a special protocol kept for this purpose. The audited company should present its objections to the draft report in writing in this very concluding meeting.

Circulation of audit report within RTD

The audit report and accompanying documents should first be reviewed by the head of section, then by the Director of Tax Audit and finally a summary of them is reviewed by the Head of RTD.

Notice to taxpayers about audit result

Taxpayer should receive the notice for the obligation resulting from the audit conducted by RTD no later than 14 days after the date of the audit report, submitted via protocol by the Head of Tax Audit. After receiving the approved audit report and the respective assessment notices, the Office of Protocol in RTD is responsible to prepare a copy to be delivered to the taxpayer's address.

The tenth day from the date that postal service submits the notice is considered as the date of receipt for the obligation assessment notice. The responsibility for failure to receive the notice in due time is with the taxpayer, which is obliged to declare the correct address in order to make sure that notices be delivered by mail in time. RTD may also send the assessment notice in person. In such case the date when this notices is handed to the taxpayer and confirmed by the latter is considered the day the notice is received. In case the taxpayer refuses, the assessment notice is considered delivered on the date of refusal.

When can taxpayers make their objections?

The audit report is signed by the audit team. If it has not been possible to resolve the audited taxpayer's claims while preparing the audit report up to the moment the assessment notice is issued, the audit team may not sign the report and present the respective objections in writing in an annex attached to the report. Beside their names in the report they should write the note "see observation".