Tax audits are relatively common – many thousand tax audits are made every year in Finland alone. The Tax Administration may initiate a tax audit randomly or because of recognizing eventual tax risks in a specific area of business or a certain transaction. Tax audit is a special form of tax control in which tax authorities tend to review the extent of the business activities, the reliability and accuracy of taxpayer’s bookkeeping, and to check whether the taxpayer has generally been tax compliant and correctly declared all information on timely basis to the Tax Administration. In practice, tax audit is the most in-depth form of tax control which is targeted to a single taxpayer. The aim of the tax audit is to ensure that the taxpayer has filed adequate and correct information for the tax assessment.
tax audit – THE object and extent
All domestic and foreign companies as well as natural persons can be subject to a tax audit. This applies also to any specific site or place of business. A tax audit may be performed fully, partially, or otherwise limited or as a comparative information audit. The Tax Administration is increasingly using lighter forms of tax control as well, such as control visits and preliminary discussions.
tax audit step by step
A tax audit begins with tax authorities familiarizing themselves with the industry and operating environment of the taxpayer being audited. Furthermore, tax authorities will review both the information sent and filed by the taxpayer as well as check the taxpayer’s tax decisions. After this initial review, the tax auditor will contact the taxpayer to schedule a specific date for the tax audit.
In the initial discussion, the company's business is presented to the tax auditors by providing them with an overall picture of the company’s business activities. At the same time tax auditors review how company’s bookkeeping, payroll and financial administration are organized within the company. During the tax audit, the tax auditors familiarize themselves with the material more profoundly and aim to review and assess unclear questions in cooperation with the taxpayer already during the tax audit. The taxpayer is always given an opportunity to respond in writing to matters that might lead to tax consequences. In the final discussion, the tax auditors go through their findings and explain the actions and implications that will likely be taken.
Finally, after the actual inspection has been completed, the tax auditors prepare a tax audit report containing facts and findings identified during the audit, as well as the tax and other possible measures arising from them. The taxpayer may provide a response which may still have an impact on final decisions. Any tax adjustments and tax assessment decisions will be made once the tax audit report has been approved.
in tax audits help of a tax expert is needed
Even if a person or a company would have complied in accordance with all provisions, the tax audit as a process can be cumbersome and time consuming. For this reason, it is recommendable to take a tax advisor on board from the very beginning and agree that all communication between tax authorities and taxpayer is made through the tax advisor during the whole tax audit process. The presence of a tax advisor ensures that any tax-related issues are addressed immediately during the tax audit and no tax consequences are caused due to misinterpretation of the facts.