DOCUMENTARY AND FACTUAL AUDITS: HOW TO VERIFY THE TAX AUTHORITY’S POWERS
Controlling authorities have the right to begin a documentary on-site audit or a factual audit only if there are legal grounds for such audit and if they present or send the following documents:
– An assignment (direction) for the audit, which must include: the date of issuance, the name of the controlling authority, the details of the order authorizing the audit, the name and details of the taxpayer (last name, first name, patronymic of the individual taxpayer being audited) or the object subject to the audit, the purpose, type (documentary planned/unplanned or factual), grounds, start date and duration of the audit, and the position and last name of the official who will perform the audit. The assignment is valid only if it contains the signature of the head of the controlling authority (or deputy) and is stamped with the authority’s official seal.
– A copy of the order authorizing the audit, which must indicate: the date of issuance, the name of the controlling authority, the name and details of the taxpayer (last name, first name, patronymic of the individual taxpayer) and, if the audit is performed at a different location, the address of the audit site; the purpose, type, grounds, start date and duration of the audit, as well as the period of activity being audited. The order is valid only if signed by the head of the controlling authority (or deputy) and stamped with the official seal.
– Official ID cards of the individuals named in the assignment for the audit (properly issued to certify the identity and authority of those officials).
If the above documents are not presented, not sent, or provided with violations of formal requirements, this constitutes valid grounds to deny tax officials access to the documentary on-site or factual audit.
Given this, when deciding whether to allow tax officials to conduct the audit, the taxpayer should:
– Demand the assignment and a copy of the audit order, and carefully check that they contain all the required details;
– Require tax officials to present their official IDs to confirm their identity and authority to conduct the audit.
If the taxpayer denies access, an act (in two copies) must be drawn up and registered, confirming the refusal and stating the reasons. One copy is delivered immediately to the taxpayer or their authorized representative against signature. The act must include the date, location, names of the taxpayer’s representatives and the tax officials, and the names of two witnesses (not connected to the taxpayer), who confirm that the officials did not have the assignment and/or documents required.
If tax officers attempt to forcibly enter the business premises or commit unlawful actions, such incidents should be reported immediately by calling 102 and the State Tax Service hotline: 0800 501 007.
In any case, to ensure proper legal assessment of the situation, justification of the refusal to allow access, legality of the audit process (if access is granted), and potential appeal of the audit results, it is advisable to involve a lawyer.
However, it is also important to understand the possible consequences of denying inspectors access to a tax audit:
1. Administrative seizure (arrest) of property
The controlling authority may impose a seizure on any taxpayer assets, except for those protected by law or funds in the taxpayer’s bank accounts.
The seizure may be full or conditional:
A full seizure prohibits the taxpayer from using or disposing of such property; the risk of loss or damage rests with the authority that imposed the seizure.
A conditional seizure restricts the taxpayer’s property rights — any transaction requires prior approval from the head (or deputy/authorized person) of the tax authority.
The seizure may be imposed by decision of the head (or deputy/authorized person) of the controlling authority, and must be reviewed by a court within 96 hours.
The taxpayer may challenge the seizure administratively or in court.
2. Seizure of funds on the taxpayer’s bank account / electronic wallet
Can be imposed only by court decision, based on a request from the tax authority.
Release of funds from seizure also requires a court decision.
The taxpayer has the right to compensation for damages and non-pecuniary harm caused by unlawful seizure, paid from the State Budget allocated to the controlling authority, based on a court decision.
25.09.2023
Tax audits 2023
