Preparation for Tax Audit: A Comprehensive Guide for Companies | Kulić & Sperk
Introduction: Proactivity as the Key to Success in Tax Audit
Tax audits represent a significant challenge for every organization, but with adequate preparation and a proactive approach, risks can be significantly reduced. Instead of facing a tax audit with uncertainty, we recommend preventive preparation that will ensure compliance with tax regulations before the audit even begins.
Our long-standing practice shows that companies that maintain their accounting correctly and regularly achieve significantly better results during inspections and avoid potential fines and additional costs.
What to Expect When You Receive a Tax Audit Notice?
A tax audit notice often causes discomfort and concern. However, it’s important to understand that this is a standard procedure by which the tax administration verifies the accuracy of your tax returns and compliance with applicable regulations.
The first step after receiving the notice should be a consultation with your tax advisor. The Kulić & Sperk team is available for urgent consultations immediately upon receipt of the notice to help you understand the scope of the audit and begin appropriate preparations.
Digital Transformation of Tax Audits
The Tax Administration increasingly uses digital tools to conduct audits. This means that inspectors have access to your data even before physically arriving at the company. Therefore, it is crucial that your digital records are as orderly as your physical documentation.
Inspectors usually request data export in a specific format from your accounting software. Our team can help you prepare digital data in a way that complies with the requirements of the Tax Administration.
Key Focus Areas During Preparation for Tax Audit
1. Documentation and Accounting Records
Tax audit begins with a review of your documentation. Ensure that all documents are neatly organized and easily accessible:
– General ledger and analytical records
– Financial statements
– VAT records and returns
– Transfer pricing documentation (especially important for medium and large enterprises)
– Contracts with suppliers and customers
– Documentation on fixed assets and depreciation
– Minutes from previous tax audits (if any)
2. Compliance with Tax Returns
Although proper and up-to-date accounting implies monthly reconciliation with the Tax Administration for each case before a tax audit, we recommend a detailed review of all tax returns for the period that will be subject to the audit:
– Corporate income tax returns
– VAT returns and Form PDV-S for EU transactions, Form ZP and Form PPO
– JOPPD forms
– Other special tax returns depending on the activity
3. Identification of Risk Areas in Tax Audit
Each industry and business model has specific risk areas to which tax inspectors pay special attention. Kulić & Sperk experts will help you identify potential risk areas specific to your business:
– Transactions with related parties and transfer pricing documentation
– Application of reduced VAT rates
– Tax deductible representation costs and business trips
– Treatment of personal vehicle expenses
– Application of tax incentives and exemptions
– Cross-border transactions and VAT on services
4. Preparation of Responses to Possible Tax Inspector Inquiries
Experience shows that tax inspectors regularly ask certain questions. Preparing pre-formulated answers can significantly speed up the audit process and reduce stress:
– Explanations of the business model and specific transactions
– Accounting policies and their application
– Methodology for calculating certain tax items
– Explanations for unusual transactions or deviations
Preventive Measures You Can Take Immediately
Internal Tax Review
Conduct an internal review or engage an external advisor for a tax audit simulation before the actual audit. Kulić & Sperk offers a “trial tax audit” service that can detect potential problems before they are discovered by the tax administration.
Our “trial tax audit” includes:
– Review of all tax documentation
– Analysis of risk areas specific to your industry
– Detailed report with recommendations for improvements
– Advice on implementing recommendations
Establishment of an Internal Control System for Tax Compliance
Develop and implement an internal control system for continuous monitoring of tax compliance:
– Regular monthly checks of tax records
– Automatic controls in accounting programs
– Clear procedures for approving and recording transactions
– Regular reconciliation of analytical records with the general ledger
Employee Education on Tax Regulations
Ensure that your employees understand tax regulations that are relevant to your business. Kulić & Sperk regularly conducts educational sessions and workshops for clients on tax compliance, including customized “in-house” education for your accounting team.
How to Act During a Tax Audit?
Cooperation and Professionalism with Tax Inspectors
A professional relationship with tax inspectors is key to a successful audit outcome. We recommend:
– Designate one person for communication with inspectors
– Ensure adequate workspace for inspectors
– Respond promptly to requests for documentation
– Consult with your advisor before giving statements
– Be transparent, but provide only the information that is requested
Documenting the Tax Audit Process
Keep detailed notes about the audit process, questions asked, and documentation provided. This will be invaluable in case you need to appeal a decision.
Case Study: Successfully Conducted Tax Audit
Situation: A medium-sized manufacturer with an annual turnover of 15 million euros received notice of a comprehensive tax audit covering a three-year period.
Challenge: The company had recently changed its accounting software, and there were challenges in documenting certain transactions with related companies.
Solution: Kulić & Sperk conducted a “trial tax audit” and identified potential risks. Together with the client, we prepared all necessary documentation, including detailed transfer pricing documentation. We also educated the client’s team on how to communicate with inspectors.
Result: The tax audit was completed without significant findings. Minor irregularities that were discovered were corrected during the audit, avoiding penalties.
Conclusion: Tax Audit as an Opportunity for Business Improvement
Although tax audits often cause discomfort, they can be an opportunity to improve your business. Audit results can indicate areas where improvements are needed in your tax and accounting processes.
The Kulić & Sperk team is available for support in all phases of the tax audit – from preventive preparation through support during the audit itself to representation in case of an appeal against the decision.
Request a Free Initial Consultation on Tax Audit Preparation
Contact us immediately upon receipt of a tax audit notice so that we can ensure the most favorable outcome for your business together.
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