Tax inspections - how to select taxpayers for control

Tax inspections - how to select taxpayers for control

In the last two weeks, trading companies that fall into the category of large taxpayers have received informative addresses in which they mention a number of issues that could influence their degree of tax risk.

These addresses are issued by the Risk Management Unit through the specific Risk Analysis Service within ANAF.

The legitimate question posed by all taxpayers who have received such addresses is - What is such an address? Is there simply a briefing or does he have to prepare for the inspection? Should he take any steps or just wait to see if they will be inspected or not?

What is, however, the degree of risk?

The Fiscal Procedure Code (hereinafter CPF) does not give a definition of the degree of risk but defines the risk analysis as the activity carried out by the fiscal body in order to identify the risks of non-compliance, as well as to use them for the control activity fiscal.

According to art. 121 of the CPF, the selection of the taxpayers to be subjected to the tax audit is done according to the level of risk established on the basis of the risk analysis.

We have identified from the practice ten factors that, in the view of tax authorities, can influence the degree of risk and, as a consequence, inclusion in the inspection plan sooner or later. We mention some of them:

1. Existence of inconsistencies regarding deliveries made in the national territory not declared by the taxpayer and declared as acquisitions by the partners;

2. The registration of a profit margin lower than the average recorded in the field of activity;

3. The degree of indebtedness;

4. The amount of additional tax obligations established following the tax audit.

According to the informal explanations given by various tax inspection teams, by communicating these addresses, it is attempted to transparent the factors underlying the determination of the degree of risk. Thus, a taxpayer may know in advance what are the aspects depending on which degree of risk and, implicitly, its inclusion in the tax inspection plan.

These addresses do not change the degree of tax risk of the taxpayers to whom they were sent but only inform them of the factors that could determine the classification into a fiscal risk category that may, sooner or later, trigger the start of a tax inspections.

Given that the methodologies and procedures for conducting risk analysis to select taxpayers for tax inspections are not transparent (not public), the present approach seems to be welcomed.

This would be in line with the recent draft amendment to the Fiscal Procedure Code, expected to happen this autumn. Under these changes, changing the degree of risk could become a transparent procedure with the taxpayer's ability to challenge it.

However, if we compare the information received by various taxpayers, we find that the number of issues that could influence a taxpayer's risk ranges from four, in the case of taxpayers, to ten in the case of other taxpayers.

This means that a specific analysis on each taxpayer has already been made by the Risk Analysis Service and, consequently, prioritized them in terms of their inclusion in the control plan.

Unfortunately, it is not possible to quantify the importance of the factors analyzed and their relevance for determining the degree of risk so as to determine whether a taxpayer qualifies or not at a level of risk that imminently imposes a tax inspection.

Several actions that could lead to the removal of such factors from risk analysis:

- the existence of inconsistencies (paragraph 1 above), which seems to be targeting Declaration 394. In the absence of specific identification of these inconsistencies, it is rather difficult to be explained by the taxpayer, identification being the first step to be able to make the necessary clarifications. Generally, these inconsistencies are artificial and can be easily explained / corrected once they have been identified.

Based on access to public information, we believe that clarifying or correcting these inconsistencies would be beneficial before including that taxpayer in the tax inspection plan.

In general, the clarification or correction of these inconsistencies is solved in the tax inspection in overwhelming proportion. But the question remains - why should the taxpayer not be able to correct them before the inspection begins, thus eliminating at least some of the issues that influence his risk?

- registering a profit margin lower than the average recorded in the field of activity (point 2 above).

From the talks, taxpayers who have filed transfer pricing files and are in the recorded range of the respective activity field (according to the file) have also received notifications regarding this factor. Which means that the tax authority's analysis does not match that of the taxpayer. In this case, a correspondence can also be given to clarify the average recorded in the domain of activity developed bythe taxpayer, with the purpose of eliminating this factor from the list of those that can influence the degree of risk.

- the degree of indebtedness (paragraph 3 above), it appears to be an aspect that influences the degree of risk in the situation where it exceeds 70% of the taxpayer's assets.

- the amount of additional tax liabilities established as a result of the tax audit (paragraph 4 above).

Many times, in practice, we meet taxpayers who do not want to challenge the tax receipts established following the tax inspection because "the tax is upset" or the value of the obligation is too low in relation to the turnover. Here's an additional reason for challenging - if you have not challenged, you're likely to be controlled again. In addition, we have encountered situations where a tax decision has been definitively canceled, and this is still taken into account when determining the degree of risk. In this situation, or in the case where a court order has been obtained, it is no longer upheld to preserve this aspect among those likely to influence the degree of risk, and the tax authority should be required to exclude this factor from the list of those who may influence its degree of risk risk.

According to the CPF, the taxpayer "can not object to the selection procedure used". However, even if the selectionitself can not be challenged, the taxpayer may ask the tax authority to exclude from the list of issues that may influence the degree of risk on those that are not in compliance.

The taxpayer must have a proactive attitude and try to eliminate as many aspects as may influence his degree of risk,to the extent that these aspects do not correspond to reality. It's easier to prevent than to fix.