Before considering this issue, we should define what a business tax audit is, (sometimes called a tax audit for companies).
What is a business tax audit?
It is a specialized process when specialists check the calculations and documents concerning tax payment. Tax audit is carried out by an audit organization as part of a special task considering tax reports to express an independent opinion on the degree of reliability and compliance with the norms established by law, the procedure for the formation, recording, and payment by an legal entity of taxes and other payments to budgets of various levels and extra-budgetary funds.
An independent tax audit for companies is always relevant for both large and medium-sized companies. An audit of tax accounting can significantly reduce losses in the payment of various fines. An audit of tax reporting is necessary to determine the correctness of the calculation of taxes applicable to the company’s activities, the status of mandatory payments for the current period, the legality of the use of tax incentives, the degree of compliance of the tax accounting system with legal requirements.
Business tax audit is a proactive procedure. The scope and format of the planned audit are set by a client. A thorough examination of all aspects of the organization’s activities that affect its taxation system is carried out as part of a tax audit. Verification is carried out by licensed audit organizations.
Methods and techniques used for tax audit for companies
In practice, a business tax audit is an individual procedure. Its course in each company is defined at the initial acquaintance with the activities of the company and is then fine-tuned with a deeper study of the order, and methods of tax accounting, the formation of the taxable base in the audited company.
But we can identify certain actions that are characteristic of a tax audit of any company. Here are these actions:
- Analysis of accounting policies for tax accounting purposes;
- Checking the procedure for maintaining tax accounting for compliance with legal requirements and current accounting policies;
- Checking the correctness of the definition of the object of taxation;
- Checking the correctness of the formation of the taxable base;
This is the most massive stage of the work. Each tax has a lot of features of the base formation. Often, the largest number of risks and reserves are discovered at this stage that. Such an important component as documentary evidence and justification of expenses (for example, income tax) is also checked at this stage.
- Checking the correctness of the application of the tax rate;
- Checking the correctness or possibility of applying for tax benefits;
- Formation of the total amount of tax payable;
- Filling in tax returns.
Of course, these are consolidated stages of Tax business audit. At each of them, auditors meet with a lot of nuances that are considered more deeply where full immersion is required.
Types of business tax audit
Traditionally, tax audit for companies is divided into three types: comprehensive, thematic, and structural. A comprehensive audit is a check of all tax reports for a year, and a thematic audit is a check of any specific tax reports for a selected period. The structured audit examines the individual tax returns that a client pays at the location of the company’s divisions.
- A comprehensive audit requires a lot of time on the part of the supplier company and large financial costs on the part of a client. Besides, with such a large-scale audit, some details in the documents may be missed, which may turn out to be both insignificant and decisive. At the same time, a comprehensive audit is more suitable for the client in anticipation of a scheduled audit by the tax office. It also allows you to identify cost trends and develop a system for their optimization.
- A thematic audit is a right choice for those clients who themselves imagine which area in business is problematic and which should be given more attention. A thematic audit allows you to get into the details of reporting and find weaknesses. Usually, it is carried out somewhat more quickly than a complex one, which is also its plus.
- A structural audit is best suited for companies with an extensive structure. It allows to cover the entire taxation system of an enterprise, compare the tax burden on divisions and balance it.
Features of tax audit for companies
The audit of the correctness of taxation in almost all the companies is carried out according to the above scheme. Depending on the specifics of the business, it may have some peculiarities.
Thus, the extraction of minerals on the territory of the Russian Federation is subject to many taxes, the amount and procedure for payment of which differ depending on the resource (oil, metals, minerals, etc.). Usually, errors in the payment of this tax are associated with ad valorem and specific rates.
Income tax irregularities usually arise from an incorrect tax base, misuse of tax incentives, or simply mathematical inaccuracies. And errors in the calculation of VAT are usually associated with the application of this tax for a deduction, and schemes for evasion of payment are built in the same way.
Tax audit results
It is impossible to say specifically how much money an IRS business audit can save for an enterprise since there are different errors in reporting. But a few examples of effective income tax audits can show the whole picture.
For instance, one of the large suppliers of raw materials (minerals) decided to challenge the tax audit, as a result of which it was obliged to pay more than 10 million rubles. The tax inspectorate demanded additional charges due to claims against the client’s contractor, with which a client did not agree and for this reason turned to the auditor company. As a result of challenging the check, the client managed to save 10 million. The audit of the correctness of taxation costs 950 thousand, so ROI is estimated at 985%.
At the same time, a tax audit can not only save funds but also return them. A furniture manufacturing company that supplies 40% of its products abroad is entitled to a VAT refund from the budget. However, it was not possible to exercise this right. The client turned to an audit company for help. Litigation was initiated, as a result of which 6 million rubles were returned, and the VAT refund procedure was debugged.
An important task in the audit of small business taxation is cost optimization. This task was performed by an auditor company for a large industrial park. As a result of checking the distribution of VAT between several types of the client’s activities, an overpayment of more than 30 million over three years was revealed. The company offered a different distribution structure, thereby saving the client from unnecessary expenses.
It can be seen from the examples given that tax audit is a profitable service, in most cases, it pays off immediately after it is provided. But for the greatest efficiency, it is necessary to choose the type of tax audit that suits the company in this current situation and takes into account the specifics of the business.
Business tax audit from the company Valen
Valen specialists are experienced professionals who will help you with IRS business audit. You can be sure of the quality of the services provided, so if you have any questions related to the organization of this process, you can contact us by phone, by mail, through the feedback form on the website, or by visiting our office in Moscow in person.
Who is interested in a business tax audit?
First of all, the head of the company, the chief accountant, and the owner are interested in such a check. These people are fully responsible for any identified problems and inaccuracies.
How to choose a company to audit tax accounting in an organization?
You can only confide trusted companies with an impeccable reputation. Otherwise, the meaning of conducting a tax audit is lost.
How much does a tax audit for companies cost?
Let’s note right away that a good tax audit cannot be cheap. We recommend that you familiarize yourself with the company’s website, study the Clients’ reviews about it and its employees, look at their resume, and, if possible, evaluate the articles and other materials of the auditors of this company posted on the Internet.
Related: Open a llc company in Russia
Get help starting your business.
The procedure for setting up a business in Russia has been actively simplified by the government.
Today the process usually takes just three days and is not significantly different for a foreigner compared to a Russian citizen.
Founding a Limited Liability Company (LLC) is considered the most convenient form of business activity.
You need to fill the application form. Foreign nationals need to provide a notarized passport translation.
The validity of your signature on the application form should be notarized, after that it should be submitted to the relevant tax body.
You will require a legal address, a charter, and a minimum starting capital of 10,000 rubles (120 EURO).
You should also specify a general director of the LLC (this might be a foreign national with work permit) and be ready to regularly prepare and submit monthly accounting reports. Then it is possible to set up a bank account for the company.
There are many advantages of this type of business:
- easier to borrow large amounts from banks;
- easier to work with contractors;
- private investors can enter the business;
- LLC can be subject to 6 (six) percent tax.
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Related: Open a llc company in Russia