The fiscal inspection is defined in the Fiscal Procedure Code and this definition is also taken over by the online guide made available on the ANAF website as an activity involving, among other things, the verification of the legality and conformity of the tax returns, the correctness and accuracy of the fulfillment of the obligations taxpayer / payer tax, and compliance with tax and accounting provisions.
From a practical point of view, the tax inspection is often finalized with the establishment of differences in the main tax obligations.
Although there is a regulated legislative framework on both procedures (including from a documentary point of view) for conducting a tax audit, and the deadlines until it should take place, in practice the exception became the rule.
Deviations from these procedures and deadlines are extremely frequent, being also duplicated by a lack of flexibility and openness in addressing inspectors over various high tax issues. Of course, we have often encountered such situations, which is why we think it would be useful to briefly explain what a "tax check" is for taxpayers.
Premises and Impact of Tax Inspection
One of the issues discussed about the tax audit appears just before it actually starts and, paradoxically, it is not a fiscal one. This is the risk analysis carried out by the competent fiscal inspection body. Briefly, following this analysis, each taxpayer / payer is given a certain level of risk that necessarily forms the basis of the taxpayer selection process that is actually to be subjected to an inspection.
The problem is, however, that there is no transparency or possibility of contesting how a certain level of risk is established for taxpayers / payers. Why do we say that?
Because according to the Fiscal Procedure Code the taxpayer "can not object to the selection procedure used". The solution to this problem is, however, a proactive taxpayer who tries to eliminate the issues that affect his tax risk and not to increase it inadequately.
Therefore, a first practical lesson for taxpayers is to participate in the correct calculation by the authorities of their degree of risk by asking the authorities to exclude from this calculation the incorrect aspects.
Another aspect that gives rise to frustration from taxpayers / payers is how the conduct and duration of inspections, the stated premise is to be done in such a way as to affect as little as possible the current activity of the company and to use efficiently the time established for its implementation.
In practice, however, their prolongation is often unjustified or unofficially justified by inspectors.
The arguments they bring concern the great amount of work they are dealing with, the lack of budget staff to cover the list of targeted taxpayers and so on.
This results in frequent suspensions / extensions of the inspection, in some extreme cases reaching the date of the final report issued by inspectors, one year of the analyzed period being already prescribed, which does not stop the inspectors from the analysis and the establishment of additional related obligations.This is disputed from the procedural perspective quite frequently in practice, at least in the case of large taxpayers for which and the additional differences set to reach very high amounts.
How is the tax inspection carried out - the main tax issues raised in practice.
Regarding the way in which it is carried out, it is quite well known the shape orientation of the inspectors, sometimes at the expense of the substance. In practice, in the past few years, an improvement has been observed with regard to the optic of the control organ, but this change is not a fortuitous one.The provisions of the national tax legislation have undergone changes and clarifications, in an attempt to comply with the provisions of the European tax legislation, but also with the related case law.This has, implicitly, attracted the need to "refine" the expertise of inspectors in the way they judge a given tax sphere. The best example of this may be the specialization of certain inspection teams in the transfer pricing area, which is currently an area of interest for many companies (hence the need to set up specialized control teams).
At the same time, in the last years, there is a certain tendency on the part of the controlling bodies regarding the tax areas contested during the tax inspections. In practice, we can identify (and even intuitively) the fiscal issues that can become "hot topic" during an inspection, looking at the legislative changes that appear and their degree of clarity. In short, the more the scope for interpreting a normative act or a legal provision is higher, the inspector's preference for the subject increases.
There is not necessarily a "fixed" list of problematic topics that we can say that regardless of the category of taxpayer will be pursued just in case of fiscal control.The list and materiality of each fiscal risk area differs for each taxpayer, depending on the industry in which it operates, as well as the volume / frequency of transactions of a given category.
However, there are a few "weight" risk areas that can be found in a fairly high percentage in practice:
- Expenditures on related services and VAT deductible (with a preference for services between affiliated companies) - Inspectors generally require an overwhelming amount of information on paper, and often fail to accumulate an understanding of their performance for the purposes of economic activities.
- Transfer pricing - both the transfer pricing file and related service documentation between affiliated entities.
- Problems in achieving traceability between documented documents and the conduct of economic activities.
- Guidance on document form and not so much on the economic substance of transactions.
What we can say with sufficient certainty is that where there is already a background check (and possibly) quite recently for a certain period, the same risk areas will most likely be reproduced and the subsequent tax audit at the same taxpayer. The possible exception here would be for those areas where a taxpayer / payer's favorable tax decision would have already been issued, an anticipated individual tax solution or a taxpayer advance agreement that the next inspection team should take into account.
Once the tax inspection has been finalized, its results can be disputed by the taxpayer - initially through the tax appeal, the stage that takes place before the tax authorities, and then in a litigation that takes place in two phases in front of the courts of law.
It is important to know that triggering the procedure for contesting the results of the tax inspection does not remove or suspend by itself the taxpayer's obligation to pay the additional amounts set or to carry out the measures ordered by the inspectors.
In order to achieve such effects, the taxpayer has at its disposal a series of mechanisms, such as: providing a guarantee to the tax authorities, obtaining a rescheduling payment, formulating a court action requesting suspension of the execution of the act.
In addition, depending on the circumstances of the case, the taxpayer may also use certain international procedures such as the "amicable settlement procedure" to eliminate the double taxation provided by the Convention on the Elimination of Double Taxation in Connection with the Adjustment of Related Enterprises Profits (90/436 / EEC).
Conclusions and recommendations
Following our extensive practical experience, we can assert with certainty that good communication between the taxpayer / payer and the inspection body can help resolve some disputes since the inspectors' fieldwork. Thus, the taxpayer has the chance to present timely explanations / documents for the inspector's preliminary findings.
Other options to be explored (especially by large taxpayers and / or having complex structures to be implemented intra-group and not only) are the advance pricing agreements, respectively the anticipated individual tax solutions (which we mentioned briefly in -a previous paragraph).These tools, for various reasons, are not yet sufficiently accessed by taxpayers, although they would increase (to a certain extent) certainty in the case of fiscal control over the period for which they were issued.
Of course, there is also the possibility of clarifying certain aspects by formulating a letter to the Ministry of Finance and / or various specialized structures with the necessary competence for a certain area. Although they are not opposable, responses to such letters may well be enough for inspectors to draw up their conclusions.
We hope that our specifications and recommendations will be useful to Romanian taxpayers, because the tax practice of the moment shows that the wave of controls by the authorities will continue in the next period.