Tax audit

For any company, even a very experienced and successful one, an audit by the tax authorities is a serious ordeal, which is not a pleasant experience. With the most careful approach to tax reporting during the audit, there are always some mistakes, for which you can get quite an impressive fine. But these troubles can be avoided, if before the arrival of tax officials to conduct an independent tax audit.

The concept and essence of tax audit 

Tax audit, conducted by independent experts, allows you to identify in advance all the inaccuracies in the documentation and promptly correct them. In essence, an independent audit is a preliminary check of financial documents for compliance with the requirements of tax legislation. A private auditor when conducting an audit performs:

• professional verification of the correctness of tax accrual and timeliness of their payment;
• literacy of the accounting department in accounting for primary documents and reporting;
• assesses the company's risks;
• consults on topical taxation issues.

Tidying up tax reporting is a very important part of an enterprise's accounting policy, allowing it to avoid a lot of trouble during an official audit by the tax authorities. Timely independent audit allows you not only to avoid stress, but also to recover your overspent funds, if they were overpaid and three years have not passed from the date of payment. 

How to conduct a tax audit? 

It is advisable to conduct an independent audit not only before the arrival of the tax authorities, but also when dismissing the chief accountant or an ordinary specialist engaged in the preparation of tax returns and tax payments. For tax audit it is necessary to invite an independent audit firm. It conducts the audit by dividing the process into two equivalent stages:

• carrying out a preliminary assessment of the taxation system;
• verification of tax payments to the budget and extra-budgetary funds.

The first stage involves such types of work:

• determining the factors that have an impact on various tax indicators;
• analyzing the applied methodology of tax payments accrual;
• carrying out a legal examination of the company's structural structure;
• diagnostics of document flow and actions of structural subdivisions;
• correct calculation of tax and other mandatory payments.

During the second stage the tax documents of the audited company are analyzed.

From time to time tax authorities conduct scheduled and unscheduled audits of business entities, as a result of which errors in tax accounting are revealed and penalties are applied. A tax audit is always a psychological stress and, more often than not, financial losses. You can avoid a lot of trouble by conducting a voluntary audit and identify inaccuracies in the accounting of taxable transactions in advance and bring them into compliance with the current tax legislation of Ukraine. 

What is the purpose of tax audit? 

Timely independent audit allows you to reduce the risk of receiving penalties for incorrectly executed documents or tax payments. The purpose of an independent audit is to:

• verification of the correctness of tax accounting at the enterprise;
• identification and correction of errors;
• refund of overpaid tax payments.

The importance of independent audit for business entities can hardly be overestimated. The possibility of a preliminary independent expert audit makes it possible to avoid unjustified financial losses on payment of penalties from official inspections by tax authorities. The purpose of the audit is to help entrepreneurs correct errors in tax accounting and implement the correct methodology of tax accruals.

Principles of tax audit

Independent tax audit is regulated by such professional and ethical standards:

• complete independence of the auditor, who has no proprietary, financial or related interests in the audited enterprise - this guarantees objectivity, honesty and unbiasedness of the expert;
• autonomy, which allows the auditor to choose methods and techniques of work;
• confidentiality of information that became known to the auditor in the course of the audit and the impossibility of its transfer to third parties;
• high professionalism of experts conducting the audit, their integrity and competence in the field of tax legislation;
• serious level of responsibility of the expert auditor;
• objectivity and honesty.

Many entrepreneurs, striving to ensure their enterprise competent accounting of tax operations, use the services of independent auditors for early detection of violations in the field of tax payments and their prompt elimination. The legislation of Ukraine provides for several types of independent tax audit. 

Main types of independent audit

According to the norms of the legislation, tax audit is divided into such varieties:

• complex, in which a full audit of tax documentation for the reporting year is performed;
• thematic - involves the audit of documents for a certain reporting period;
• structural - is used to check declarations for correctness of filling in for separately selected taxes;
• express audit - full examination of all documentation in the shortest possible time, it is used when there is not enough time to
• conduct a traditional comprehensive audit, and it is necessary to check a large array of documentation.

All legal entities and individuals, residents of Ukraine, in accordance with the requirements of the tax legislation must pay certain taxes and fees. The term "tax" means a compulsory payment to the relevant budget. Taxes are levied on persons registered with the tax authorities as tax payers, legal entities and individuals. Fees are also compulsory payments, but they are directed not to the state budget, but to the budgets of local territorial bodies. The list of taxes and fees in force on the territory of Ukraine, approved by the Tax Code and assumes the filling of the state and various local budgets of the respective territories.

What taxes are levied in Ukraine? 

The taxes introduced by Ukrainian legislation are divided into:

• national;
• local.

The list of national taxes includes the following types of taxes:

• VAT;
• corporate profit;
• on personal income;
• excise tax;
• environmental taxes;
• payment for land; 
• rent payment;
• payment of duties.

The list of local taxes includes such taxes and fees:

• real estate, transportation, and land taxes;
• uniform;
• parking fee;
• tourist tax.

Evasion from fulfillment of tax obligations is not an uncommon phenomenon in Ukraine. Unscrupulous taxpayers who evade timely transfer of taxes are subject to different ways of punishment - administrative, financial, criminal liability. At that, the Tax Code provides for different penalties for violation of tax legislation. 

Types of penalties for non-payment of taxes

Financial responsibility as a punishment for tax evasion provides for the payment of fines in different amounts - depending on the degree of violation

Depending on the conditions of violation of tax payment, the tax payer (Article 126 of the Tax Code) may be fined 10% - 20% of the tax debt. The penalty is accrued for each calendar day of delay, including the day of repayment, at the rate of 120% per annum of the NBU discount rate.

For violation of tax legislation provides for bringing to different types of responsibility:

• administrative;
• financial;
• criminal.

Who is responsible for bringing tax defaulters to punishment? 

Who can bring a tax defaulter to tax liability? 

The state body that is authorized to control compliance with the norms of tax legislation is the fiscal authorities. According to the results of a tax audit, which was conducted by the tax authorities, in case of detection of a violation of tax legislation, the relevant documents are drawn up - an act and a notice-decision. The right to conduct an audit, including investigative actions, in the field of tax and financial crimes is given to the tax police. This body provides the necessary documents to the court for a court decision.

At the same time, the investigator has the right to:

• conduct a search;
• seize documentation;
• seize the accounts of the defaulter;
• conduct interrogations;
• to take a signature of non-departure.

Tax audit is carried out in order to verify financial and tax reporting and to correct any errors found. The result of the audit is to establish the reliability of the information reflected in the statements. The audit may be both voluntary and mandatory.

Mandatory audit is provided for such taxpayers as:

• joint stock companies;
• banking or credit organizations;
• insurance companies;
• investment and other funds where accounts of legal entities and individuals are accumulated;
• Charitable organizations and public funds, the resources of which are formed by voluntary contributions;
• extra-budgetary funds created on the basis of contributions of legal entities and individuals;
• commodity and stock exchanges;
• business entities with a share of state property.

Penalties for evasion of mandatory audit are as follows

Various legal actions of a tax payer aimed at reducing tax expenses and other statutory obligations. 

The essence of tax planning

Tax planning is an important part of financial planning, which is carried out at any enterprise. Its essence is that the payer can use the gaps in the legislation and apply certain efficient ways and effective techniques, not prohibited by law, to reduce the size of tax liabilities of his enterprise.

For what purpose tax planning is used:

• optimization of upcoming tax deductions;
• to reduce the level of tax losses from payment of tax and levy liabilities;
• implementation of tax prospective planning to analyze upcoming tax payments.