Tax audit process step by step: From the sales tax to the tax audit

Many tremble before a tax audit, but very few know exactly how it works. Therefore, the process is explained step by step. Important in all this: Tax auditors are only People.

Procedure of the control test Operation test step by step

The sequence of tests is as follows:

• As a rule telephone voting
• Examination arrangement with request of the electronic data
• Send the data to CD
• Start of examination (on check-out, the examiner will identify)
• opening meeting
• Actual examination by priority / investigation principle
• final phase
• closing meeting
• audit report
• Possible comments on the audit findings
• Adoption of the amended tax assessments
• Possible appeal
• If the appeal is rejected, action before the Finanzgericht is possible (observe the legal period)

If there is no objection/no lawsuit or if the suspension of enforcement is not granted, the additional Taxes and ancillary services (interest) to pay.

Which companies are being audited?

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The ones to be examined Companysfor which a tax audit is possible are classified in the size classes. These are:

• large companies
• medium-sized enterprises
• Small businesses and
• micro-enterprises

The reference date, the relevant taxation period and the features for this classification are each determined by the highest financial authorities of the federal states in consultation with the Federal Ministry of Finance established.

How often is testing?

Statistically, depending on the operating mode, it is checked at certain intervals:

• Large enterprises complete
• Medium-sized enterprises all 10 years
• Small businesses all 15 years
• Micro-enterprises all 20 years

But even if the time is statistically near, it does not necessarily mean that an exam will take place. At the same time, however, no company can resist a stubborn random selection be immune!

Examiners are only human

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The examiners are also human. The human aspect should never be overlooked in an exam.

So also if before Anxiety or excitement swells the jugular, stay friendly, don't shove the examiner into the last basement dungeon and communicate up eye level!

Only no side-effects

The copying work should be done by your own Employees to be executed. In this way, you can keep track of which relevant documents the auditor has already received and which audit focal points could emerge.

Do not open any side warriors! If, for example, the auditor requests documents that are not considered to be relevant to tax law, they prefer to issue these documents as right and lead an emotional duel.

And besides, even examining these documents takes time. Time to be saved at another examination point by the examiner.

Delay money - pressure from the tax authorities

The delay money becomes an increasingly popular means of financial pressure by the financial authorities. The delays may be set if the taxpayer fails to present documents requested within a reasonable period, does not require information or does not provide the data access. The delay money can be between 2.500 and 250.000 €.

Once established and final, it has to be paid, regardless of whether the requested documents / information lead to a subsequent tax payment or afterwards the desired information has been provided.

Preventive measures against the determination of the delay fee

One possibility, for example, is to request an exact description of the requested documents / information, if necessary to request an extension of the deadline and to raise justified objections against set deadlines.

Sales tax inspection

Among all tax audits, the VAT survey is the most unpleasant because it can be done without notice. For sales tax, there is also the sales tax special examination. From there it is not far to the tax audit.

The sales tax inspection is carried out without prior notice by the tax office! This is not an external audit.

The review is limited to reviewing the facts that are significant for sales taxation. The land and business premises of the taxpayer may be entered. However, access to the living quarters is only permitted “in the event of imminent danger”. If further information is available, a regular VAT check can be carried out.

Examinations for the inspection are:

• Start-up in a newly founded company (does the company actually exist)?
• High pre-tax refund claims in the pre-registration procedure (check whether the goods actually exist, the fixed assets)
• Unclear usage or actual use of objects (eg sailing yacht)
• Pre-tax adjustment according to § 15a UStG
• (Eg when another taxpayer claims high reimbursement amounts from invoices with the company).

VAT special audit

The tax offices carry out the check. It is a drop test. The examiner is therefore selected on the basis of a risk profile. The same “selection criteria” play a role in the VAT review.

The main focus of the audit is on:

• Tax free supplies
• export supplies
• Intra-Community trade in goods
• Choice of the right tax rate
• Delimitation of operational to private expenses
• formal requirements for deduction of input tax

The sales tax audit can only be limited to individual pre-registration periods!

From the VAT to the tax audit

The most serious test for the entrepreneur is the company audit or external audit. First, it is the most comprehensive test.

This is not limited to a single tax type as it is the case with the special audits. On the other hand, this test usually takes the longest.

Purpose of the tax audit

Because the disadvantage is: Instead of a few days, the examiner can also spend several weeks in the business to re-determine the tax bases. An audit is carried out by the tax authorities and is usually announced (except for the tax investigation).

The purpose of the tax audit (tax audit) is to identify and assess tax-relevant facts in order to ensure the uniformity of taxation (§§ 85, 199 para. 1 AO). Necessary tax adjustments are made both in favor of the taxpayer and to the detriment of the taxpayer.

How does the tax authority decide whether to check or not?

When arranging and carrying out audit work, attention must be paid to the proportionality and least disruption of business operations. The tax authority decides at its best discretion whether and when an audit is carried out. This also applies if the taxpayer desires an early tax audit.

The audit is governed by an administrative regulation - the company audit regulations. For special audits (eg external payroll tax audits and sales tax audits) §§ 5 to 12, 20 to 24, 29 and 30 are to be applied mutatis mutandis with the exception of § 5 para. 4 sentence 2 of the company audit regulations.

Audit period

The examination period is usually three years. The following are checked: income tax / corporation tax, value added tax and trade tax.

In the case of private companies, the audit also covers the separate and uniform assessment of tax bases.

The timely tax audit

NEW since 2012 is the timely audit. For this, the company audit regulations were changed in advance and § 4a was inserted:

• (1) The tax authority may select taxpayers for a timely tax audit under the conditions set out in paragraph 2. An audit is timely if the audit period includes one or more near-term tax periods.
• (2) The basis for timely tax audits are the tax returns within the meaning of § 150 of the Tax Code of the tax periods to be audited (paragraph 1 sentence 2). In order to safeguard the participation rights of the Federal Central Tax Office, the taxpayer selected by the tax authority is to be named immediately to the Federal Central Tax Office, deviating from the period of § 21 paragraph 1 sentence 1.
• (3) An audit report or notification of the unsuccessful audit is to be prepared for the result of the prompt tax audit (Section 202 of the Tax Code). ”

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