How do the tax authorities select organisations for audits

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The Tax Service publishes an annual plan of business audits for each year.

Organisations and individual entrepreneurs can be included in the plan based on a number of criteria:

  1. Reporting anomalies: If a company’s reporting shows discrepancies or notable differences from industry averages, this may raise suspicion and trigger an audit.
  2. Tax audit history:  Companies that have been subject to tax audits in the past, especially if irregularities have been found, often remain the focus of the tax authority.
  3. Sector of activity: Certain industries such as construction, import/export of goods and retail are often under the microscope of the tax authorities because of their large contribution to the economy and high risk of abuse.
  4. Special tax regimes: Companies using special tax regimes, such as the simplified taxation system or the unified tax on imputed income, may also attract the attention of the tax authorities. This is due to the fact that these regimes are often used to optimise tax payments.
  5. The size of the company and the volume of its operations: Large companies and companies with significant operations are often on the radar of the tax authorities as they may have significant tax potential.
  6. Income to expense ratio: If a company’s income is growing faster than its expenses, this can also arouse the suspicion of the tax authorities.

What to do to minimise the likelihood of an inspection – tips for business:

  1. Employee salaries should not be lower than the industry benchmark in the region. It is also not worth using a “grey” salary scheme. This is important to avoid unnecessary attention from the tax authorities.
  2. If a company has approached the established limits on the application of a special tax regime at least twice, it can be included in the list for inspection. This means that the organisation should manage its workload carefully and not exceed the set limits.
  3. Submitting documents and clarifications on time and correctly is very important to maintain good relations with the tax authorities.
  4. Prior to co-operation, potential partners should be checked for suspicious activities. This will help to avoid participation in dubious enterprises.