Facing Tax Inspections and Audits in the right way (2)

Previously, we shared the main differences between tax inspections and audits. In this article, we will discuss the key points for responding to tax inspections and audits.

Key points for responding to tax inspections

 

In terms of mentality

Enterprises should treat tax inspection as a normal daily matter like tax declaration.

Enterprises should classify tax inspection matters from a professional point of view and prioritize them. Tax inspections are often initiated on the basis of doubtful points pushed by the Golden Tax System. These doubts are pushed to help the tax bureau understand the actual situation of the enterprise.

With the increasing frequency of doubtful points pushing, for enterprises with better tax credits, many tax inspection matters can be completed by replying with only verbal explanations.

On the contrary, if the enterprise has been putting the tax bureau on the opposite side and adopting an evasive attitude, it will seriously affect the enterprise’s credit, increase the cost of responding to inspections, and be unfavorable to the normal operation of the enterprise.

In terms of action

Enterprises should focus on daily communication with the competent tax authorities.

Example:

Enterprises can proactively communicate with the competent tax bureau when they are uncertain as to whether a certain tax incentive policy can be applied. Conduct an assessment in advance before the enterprise incurs major tax-related processing, and if necessary, confirm with the competent tax bureau in advance to seek guidance and recognition from the tax bureau.

Special Tips:

For policy interpretation, apart from good communication with the competent tax office, enterprises can also contact the business section through the tax service department of the tax bureau to seek more professional guidance, and the tax service system of the tax bureau also provides enterprises with such communication channels.

From the perspective of internal collaboration

There should be good coordination among various departments within the enterprise.

Example:

In the R&D deduction inspection, the salary data of R&D personnel may be involved, and it is often necessary for the company’s finance and tax department to do a good job of docking with the human resources department, to try to avoid inaccurate data and delays in the provision of information due to the lack of coordination among the various departments within the enterprise.

From the perspective of risk prevention

As the risk points of tax inspection are often automatically pushed by the system, the company can conduct regular self-inspections according to the characteristics of the industry and business and prepare in advance to deal with tax inspections.

• Key points for responding to tax audits

Tax audits are essentially inspections initiated by the tax authorities (inspectorates), but they have a strong enforcement purpose and rigidity, i.e., the inspectorates generally have already grasped some prima facie evidence of tax violations prior to initiating the audit, especially for cases of false VAT invoices, which are very likely to have been characterized as false invoicing in the invoicing process.

To cope with the audit, it is recommended that enterprises should carefully review the possible tax violations in the past, assess their impact on themselves, organize a response plan as soon as possible, and not take any chances, but actively make up the tax, to avoid the loss of late payment fees, and also most likely to gain the understanding of the inspection bureau and minimize the impact.

For cases where the preliminary facts are clear, there is still room for acquittal in terms of legal characterization.

Case Study

In a case, the court of first instance found WANG guilty of false VAT invoicing and sentenced him to fifteen years imprisonment. WANG appealed, and the second instance court ruled to reject the appeal and upheld the original judgment. After the original judgment became legally effective, WANG’s son, QI, filed a complaint with the court of second instance, which issued a notice of dismissal of the complaint. WANG appealed to the Supreme People’s Court. The Supreme People’s Court issued a decision on retrial, and the court of retrial issued a criminal judgment that WANG was not guilty. In the case of the absence of real goods purchase and sale transactions, the cycle of issuing VAT invoices and input tax credit, in accordance with the provisions of the tax declaration to the competent tax authorities, the whole process of the ring to opens the ring, closed loop offset, did not cause the loss of state taxes. The perpetrator did not aim at cheating the state tax, did not have the behavior and subjective intention of siphoning off the state tax, did not meet the constitutive elements of the crime of false VAT invoices, and was not appropriate to be convicted and sentenced for the crime of false VAT invoices.”

Compared with tax inspection, the position of enterprises in inspection cases is relatively more passive, so it is very important to find the right communication channels and communication methods.

When dealing with tax inspections, enterprises can try to seek a balance of economic benefits within the rigid enforcement framework, for example, by prepaying taxes in advance before issuing a tax processing decision to achieve the effect of paying fewer late fees.

Speaking of late fees, what should we do if it is unavoidable that we need to pay a fine? How are late fees calculated? What is the risk of criminal liability? Please keep following our next article.

Please feel free to contact us if you have any questions.