Analytical periodical "Lawyer & Law" highlighted an event that was organized by our firm
Analytical periodical “Lawyer & Law” published the material about the event held by our law firm together with Ukrainian audit firm “Aksyonova and partners” on October 26, 2012.
The event was held in the form of business lunch and was dedicated to new approaches in accompanying tax audits as well as their effective administrative appeal.
Text of the article is provided below (the original was published in Russian):
"Business lunch "New approaches to accompanying of tax audits – effective administrative appeal " was organized by an audit firm “Aksyonova and Partners” (Geneva Group International) on the 26th of October. Law firm “Pravova Dopomoga” became a co-organizer of the event.
Volodymyr Gurlov a partner of law firm "Pravova Dopomoga" spoke about correct approach to interaction with tax inspectors. In particular he explained that an effective set of measures taken by a company should consist of two blocks: preparation of a company for a tax audit and appeal of tax obligation notification carried out after the audit. The first block plays the crucial role because without proper attention to preparations it is impossible to appeal audit decisions effectively.
For companies that cannot use common schemes of crushing business into a number of legal entities (such as subsidiaries of foreign companies) Mr. Gurlov first of all recommended to try not to fall under the criteria that increase risk of a tax audit. Although these criteria are not publicly available most of them are intuitively understandable. For example one should not allow negative figures in the income tax, a substantial increase or decrease in revenues compared to the same periods and other similar facts that cast doubt upon the reliability of company statements.
Additionally one should get ready for an audit in advance. This means that preparations should be started not from the moment of tax audit notification but rather from the moment of business transaction conduction. This means the necessity of careful design of transactions that are the most risky in terms of increased tax authorities attention, preparation of arguments in advance (tax interpretations, court decisions etc.) that are in favor of the taxpayer situation. Thus a lawyer supporting conduction of an operation should think about how to avoid unfavorable tax consequences for the company in advance.
As for an audit itself Volodymyr Gurlov recommended to engage lawyers for support from the very beginning. Based on his experience participation of a lawyer on early stages often allows to succeed in appealing audit results as well as to prevent many potentially problematic situations during an audit. In fact it is undoubtful that those companies in which all stages of an audit are supported by a team composed of accounting and legal departments representatives experience have the most painless communication with tax auditors. At the same time Mr. Gurlov pointed out the following rule: before receiving tax obligation notification an accountant should play the leading role (a lawyer from his side should only advise him on rights, obligations and possible consequences of any action) but after receiving of such notification the lawyer should become the main one (and accountant helps the lawyer to find evidence to support company position during either the procedure of administrative appeal or court hearing).
Also a great deal of attention should be paid to the psychology of communication with tax auditors. This idea arose in the speech of Managing Partner of audit firm "Aksyonova and Partners" Olena Makeyeva.
While presenting her authorial method of tax audits support she mentioned that the successful completion of an audit depends on the inner confidence of company representatives including chief accountant. Such confidence can be ensured only by preliminary preparation.
In her speech Mrs. Makeyeva indicated that an accountant should always be mindful of his strengths (for example high level of knowledge in accounting and taxation in general as well as understanding of specific business features of the company in particular) and weaknesses of inspectors (including strict time limitation and low level of awareness about the company activities compared with an accountant). These strengths and weaknesses should be used primarily to construct your own audit scenario and bring it to life.
Olena Makeyeva points out that the most serious mistakes are made by accountants after an audit notification. Many stupid things are done in rush and panic before the arrival of an "Auditor" that can be costly for a company.
At the same time special attention should be paid to the first day of inspection. Mrs. Makeyeva insists that the first impression is crucial. Therefore it is necessary to create an atmosphere of constructive partnership with the inspectors from the very first day. This means that authorized representatives of a company while communicating with the inspectors should not withhold information which cannot cause any harm to the company. On contrary much more successful strategy is voluntary provision of such information without waiting for the request. Naturally it should be prepared in advance because improvisation in this matter may cause substantial harm.
However this does not mean that inspectors are to be allowed to do whatever they want. On the contrary it is all about how to keep their activities under control (in accordance to the law of course). In particular you need to fill out an audit journal carefully, prepare lists of documents submitted to inspectors and also keep a log of visits (or any other possible record, for example e-admission system, register the arrival and departure of inspectors on every day of an audit).
Another important matter that was emphasized by Mrs. Makeyeva was an order of explanation at the request of the auditors. According to the speaker it is unacceptable for an accountant to provide explanations without consultation with the chief financial officer (or other authorized person from the company financial department) and / or with a lawyer
Additionally Olena Makeyeva recommends to complement an audit accompaniment procedure with regular meetings of chief accountant and other top officials of the company with inspectors in order to create so-called audit screen. During these meetings that are necessarily conducted under the protocol all the audit matters are discussed, in particular whether the required documents are provided in a time, questions that need to be clarified to inspectors etc.
According to Mrs. Makeyeva the expression of such benevolent attention towards inspectors as well as construction of transparent relations allows to cope with an audit successfully and minimize unpleasant consequences for the company or even avoid them.
During the business-lunch “New approaches to accompanying of tax audits – effective administrative appeal” the speakers pointed out the necessity of preparation in advance for a tax audit which should include not only the proper preparation of primary information and records but also a collection of evidence in case of a future dispute with tax authorities as well as planning of the desired scenario of the meeting with inspectors. Thus proper attention to the discussed issues will significantly reduce the risk of adverse situations during the audit."
Author: Oleksandr Popov, “Lawyer and Law”
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