Is the company calculating its taxes correctly? Business owners and management ask this question more or less regularly. It is possible to get an expert opinion on this issue from the state, as represented by the tax authorities, following a tax audit. However, such an approach is also just as regularly accompanied by additional assessment of taxes, penalties and fines…
Our Firm offers a more effective method that clients can choose:
Initiative tax audit
By involving an independent practitioner who possesses not only extensive theoretical knowledge but is also constantly in contact with the tax authorities while representing clients in the courts and appealing decisions at the pre-trial stage in such “self-audit”, business owners and company management get an opportunity to assess existing tax risks in light of the latest trends in practical interpretation of legislative provisions and to promptly take steps to resolve identified issues. Moreover, such work may reveal potential tax savings opportunities, which is clearly not an objective of the state oversight bodies.
So, initiative tax audit is intended to both identify historical tax risks inherent to a company and provide practical recommendations on how to manage risks, and to identify hidden tax assets in order to increase shareholder value:
- If the practitioners discover underpayment of tax (for example, improper deduction of expenses for profit tax purposes), the company may file an amended tax return and pay additional tax and penalties, thereby avoiding tax sanctions (a fine) for nonpayment of tax.
- In controversial situations where it isn’t clear that a deduction is valid, and the oversight bodies and the courts are of contradictory opinions, the practitioners assess the company’s chances of proving its position to the fiscal authorities (both out of court and in the event of a pre-trial dispute), and provide recommendations to strengthen the taxpayer’s position.
- Often in such initiative audits the practitioners find that the entity being audited has so-called tax assets (expenses that haven’t been deducted, VAT that hasn’t been refunded, unused tax incentives). Such assets generally appear when the company’s financial services take too conservative approach in calculating tax liabilities. Identifying tax assets in a timely manner (within a three-year statute of limitations on tax matters) enables the company to recover excess taxes paid in the past, or to offset them against current tax liabilities.
As our practice shows, the additional benefits reaped by a company from doing such an initiative audit often exceed the cost of the audit many times over. Initiative tax audits done by our Firm are distinctive for their careful planning and focus on key risk areas for a particular company in light of industry specifics. In contrast to audit firms, we do not do a full-scope audit with mass examination of primary accounting documents and the involvement of “junior specialists” to compile files. We use a risk-oriented approach that takes account of the latest trends in law-enforcement and court practice and involve only experienced lawyers who identify at the first stage the company’s key risk areas and possible areas where tax assets can be found, and then work only in those areas.