How does the Tax Audit Occur?
Tax audits occur to ensure the information provided by companies and individuals is accurate and complete. For this reason, keeping your records up to date and in a good order is essential. Tax audits can have a scope of three years and generally involve the tax authorities checking the documents and tax returns that your company has submitted. Where there is a suspicion of tax evasion or negligence in the filing of tax returns the limitation period for investigation can be extended.
How strenuously and how often you will be audited depends on many factors such as the income of your company, the industry your business is involved in and also in how your previous audits have been received. Larger corporations tend to be audited more often than smaller businesses. Such tax audits can take a variety of forms and may not necessarily be a full search of premises. It is useful to remain on the good side of the tax authorities as should inconsistencies appear, it may be possible to resolve them without going before the courts.
Tax investigations can arise where there is a suspicion of tax evasion or other tax criminal offences. As we will see, such investigations can cause difficulty and stress. Tax investigations are allowed for under § 208 German Fiscal Code.
How to Act during a Tax Investigation
Staying calm and relaxed is the most important action you can take. Even where the tax investigation takes you by surprise, treat the investigators with respect and remain calm. Mistakes can be easily made with an aggressive response. Resistance is not advisable as it will not achieve anything, if the investigators have a search warrant. However, it is advisable to see the search warrant in question and to get a copy of it. The search warrant outlines the exact parameters of the investigation. There is no “blank check” in such investigations, they must fulfil their set requirements, therefore having a copy of the search warrant will allow you to see what exactly they are looking for.
When the tax investigator arrives, it is best to move them into an office or another location away from the main business of the company. From here you can get in contact with our tax lawyers. It is not forbidden or against the law to receive outside counsel. Do not provide any additional information until our tax lawyers have consulted with you. Once the tax investigator is aware that your tax lawyers are informed of the matter, they will know to act with care. Their actions will be scrutinised by professionals.
If you are in the midst of a tax investigation, it is too late to file a voluntary self-disclosure. Make sure that your employees are instructed to keep their silence as well and inform them that the matter will be resolved by company management. The tax investigators should also not be left alone within your premises during the investigation. They should, of course, not be prevented from doing their work, but having people stay with them throughout the investigation ensures that you know exactly what they have and have not seen. Should they request documents or other evidence, make sure that they are “seized”. Do not simply volunteer documents.
During the investigation it is strongly advised to keep records of the visit. When they visited, how they acted, what they seized and with as much detail as possible. Keep such documentation safe for our tax lawyers to look over and thus ensure that they have acted within their remit.
Follow-Up to Tax Investigation
Having followed the above instructions, our tax lawyers will focus on the next steps to be taken. They will examine your protocols and records of the visit by the tax investigators and determine whether the investigators acted completely within their legal rights. Should the tax investigators have seized documents that were not within their remit or acted in a manner above what was allowed to them according to their warrant, your tax lawyer will instruct you as to what actions can be taken. Our lawyers will also examine the copies of the documents which were seized. Having such documents organised and ready to be analysed, allows the job of our tax lawyers to be more straightforward.
The investigation may lead to a satisfactory conclusion on your part with the tax investigators stating that everything is above board with your returns. They may also find that certain changes should be made to your return. If you do not accept these changes, tax litigation can ensue. In such circumstances, our tax lawyers will be ready should you require their advice and assistance. Where possible we will look to resolve tax disputes out of court, as this is a more cost-effective and time-saving route. Should the matter need to go before the courts, our lawyers will provide the representation you need. Contact us today to find out more about how we can help you during a tax investigation.