Accompaniment of external audits
The receipt of an audit order as an announcement of a tax audit or so-called external tax audit by the tax authorities or the customs administration regularly leads to a certain nervousness among entrepreneurs. In addition to possible tax back payments and the great effort that the audit causes, tax evasion can also be uncovered, which leads to an extension of the audit and corresponding criminal consequences. But don't fret! Tax audits are just part of a business activity, as is dunning with defaulting customers. It is positive right at the beginning that the tax audit is usually announced and, thanks to this, you can discuss and coordinate the first organizational issues with the responsible auditor in advance. Unannounced tax audits are also common - but far more unpleasant.
Who and what can be actually inspected, when and by whom?
In principle, every company can be audited. While large corporations are sometimes continuously audited, some small and medium-sized companies are lucky enough not to be audited at all for many years.
The course and scope of the tax audit result from the written audit order. This contains the legal basis for the examination, the name of the examiner, the date and place of the examination, the start of the examination, the examination period (usually three financial years) and the objective scope of the examination (usually the tax types to be examined).
In contrast to social security law, tax law does not provide for any regular audits. Large companies are sometimes even audited annually, depending on certain sales and profit figures. The examination cycle for small and medium-sized companies, however, is at the discretion of the tax authorities. In some cases, industry issues (e.g. online business) or legal adjustments (e.g. cash accounting determine an audit. On the other hand, anonymous reports, control notifications or pure coincidence can also lead to a tax audit.
As part of the external audit, the tax office can get an actual overview of the company and business operations instead of just examining annual financial statements and tax returns from the office. Naturally, the balance sheets and taxable profit determinations as well as tax returns are checked for correctness and completeness first. In addition, there are various focal points in examinations depending on the company, the associated industry, the size of the company or due to special audit fields of the financial administration. These can include checking and testing the income side as well as checking the legality of the type and amount of business expenses. Anyone who thinks that the tax authorities rummage through files and papers for days is wrong. More and more tax audits are now being carried out digitally. Based on the digitally made available data from payroll and financial accounting, the audit services analyze weak points and irregularities with the help of testing software. In addition, tax authorities can tap into numerous databases and thus prove to companies that the surcharge rates are too low or inquire about book and receipt evidence.
Every tax audit is felt to be more or less a burden, regardless of the frequency and type of audit. The company or tax advisor must provide space for the auditors, contact persons and numerous documents. That ties up capacities. In addition, it is sometimes impossible to prevent the management or senior executives from having to participate in the tax audit.
Overview of the tax audits
- External tax audit
- Turnover tax special audit
- Turnover tax review
- Special income tax audit
- Social Security Test
- Customs inspection
The auditor is subject to legal limits in his powers and the taxpayer is obliged to cooperate. In most cases, this is advisable if only because the tax office ultimately has the means of estimating in the event of a lack of or insufficient cooperation, which will almost always be at the expense of the taxpayer.
If, as an entrepreneur, you have hired employees who are subject to social security contributions, you will usually visit the German Pension Insurance every three years and, in addition to social security issues, also take a close look at tax obligations under the artists' social insurance fund.
Fortunately, not all companies have anything to do with the customs authorities. But visits to the customs authorities are part of everyday life, especially in the construction, transport and logistics sectors, as well as in the catering and hotel industry.
At PBS, we have extensive experience with tax audits, including because we were partly trained in financial management ourselves and are therefore familiar with the processes.
In addition, we show respect and fairness towards the examination authorities. Understanding the other side and having conversations at eye level have already solved many problems quickly, even in previously stuck situations.
In the course of the audit, the auditor usually asks written or oral questions about matters that need clarification. He may request further documents and discuss his further intentions and findings.
After clarification and legal considerations of the tax issues, the auditor makes observations and informs the person subject to tax liability or his advisor in writing. They will then be given the opportunity to give their views.
The observation, possibly revised by the auditor, are discussed in the exit meeting with the person subject to tax liability and his representative. In the process queries can and are intended to be clarified, the points of view discussed and tax implications demonstrated.
Subsequent to the exit meeting, the auditor prepares an audit report. New tax assessment will be issued on this basis, possibly after further consultation on disputed points, if necessary and permissible. These can then be contested through legal remedies, generally by making an appeal.
Our task begins way before the actual audit. Because the basis for a smooth and uncomplicated audit is often already determined by the quality of the payroll and financial accounting. The better we have performed on these points and the more intensive the exchange between client and PBS has been, the greater the probability of completing the tax audit without back tax payments. It would not be the first time with us!
But of course, audit is not limited to only subjects concerning basic payroll and financial accounting. That is why as experienced tax advisors, we assist you in auditing cases on receipt of the tax audit notice. Apart from the professional expertise and knowledge of the current case law, the extensive experience in the process of the audit and dealing with the tax auditors are a great advantage. During the ongoing audit, we will clarify about your rights and obligations, assist you in sorting out critical issues and - if necessary – legally stand up to the auditor. Apart from that, it is not absolutely necessary that you are already our client before we see through the audit on your behalf. Upon request, we will interact only after receipt of tax audit notice or handle a company audit on behalf of professional colleagues. We guarantee the highest level of professionalism and client protection.
- Checking, inspection and preparation of documents after submission by the clientele in our office before the beginning of the audit.
- Participation and assistance in tax audit in our office or in the business premises of our clients.
- Statements and compilations of required documents and verification vis-a-vis the statutory auditor.
- Informing the client about the current status of the audit at any time.
- Effecting exit meeting with the statutory auditor and, if necessary, the Sachgebietsleiter (Technical Expertise Manager) (together with the clientele, on request).
- Inspection of the report on the tax audit carried out.
- Inspection of any subsequently issued amended tax and assessment notices.
- Of course, we will support you in appeals or litigation proceedings if the desired solution is not achieved in the course of the audit.
- Professional support to the statutory auditors creates a good working atmosphere
- The position of the room and the staff leads to the discharge of their capacities
- Extensive experience helps early detection of risks and solving problems
- Access to innovative test models, databases and case laws
- Control and prioritization of the flow of information towards the auditors