A tax audit is a serious test for any company. However, proper preparation can significantly reduce tax risks.
We present a checklist that will help you effectively prepare for interaction with tax authorities.
First, we recommend conducting a legal analysis of the tax audit assignment's legitimacy, assessing compliance with legislatively established procedures. Proper and comprehensive analysis will allow making an informed decision about the feasibility of challenging the directive.
For organizational measures, designate responsible persons for interaction with auditors and allocate a separate room for auditor work (if auditors decide to study documents directly at the taxpayer's office).
Also assess the company's position on disputed issues and verify the completeness and accuracy of primary documentation. Specifically, depending on the type of business activity, legislation establishes its own document formatting requirements. For example, when transporting cargo, tax authorities mandatory require cargo waybills and route sheets with accurate information about vehicles and drivers. In construction, tax authorities consider the presence of hidden work certificates, work completion certificates in form KS-2, reports on completed work value and costs, etc.
Proper fulfillment of tax obligations by suppliers of goods, works, and services is important. Otherwise, the taxpayer's expense portion may be viewed as unjustified tax benefit. High risks also arise when suppliers lack staff and other resources, which may lead tax authorities to conclude about artificial expense inflation.
For fixed assets, intangible assets, and inventory accounting, you'll need:
- Fixed asset inventory cards
- Fixed asset acceptance-transfer certificates
- Fixed asset acquisition documents
- Depreciation documents
- Write-off certificates
- Revaluation documents
- Technical equipment passports and warranty cards
- Warehouse accounting cards
- Internal inventory movement waybills
- Inventory certificates
- Inventory write-off documents
- Defect/shortage accounting documents
Regarding employee settlement documents, double-check:
- Staff schedule
- Compensation regulations
- Employment contracts
- Hiring, dismissal, vacation orders
- Salary calculation statements
- Work time accounting timesheets
- Social payment accrual documents
Always document all tax authority requests, receipt of responses (with incoming office stamp), all suspension, extension, and resumption facts of audit deadlines. In practice, audit deadline violations occur, and such documentation helps protect your rights.
When preparing for audit completion, analyze preliminary results and prepare reasoned objections. However, objections should be prepared considering strategic aspects. Remember that prematurely submitted objections may give tax authorities reason to refine and improve the final audit report. Therefore, present arguments only when there's high probability of positive decision following their review.
Next, if receiving unfavorable audit results, you must:
- Determine clear position on each identified violation
- Analyze current judicial practice
- Study official financial authority clarifications
- Assess prospects and risks of various action options
- If necessary, prepare complaint to Kazakhstan's Ministry of Finance or court lawsuit
Thus, thorough tax audit preparation minimizes risks and protects company interests. The proposed checklist covers key preparation aspects and helps you structure interaction with tax authorities most effectively.
Remember that each company is unique and may require recommendation adaptation considering your business specifics. In complex situations, we recommend engaging qualified tax consultants to ensure professional support at all stages of tax authority interaction.
Nurlan Zekenov, Partner at GK and Partners
