Suspected tax evaders now subject to raids

Both Ministerial Decision 30/2012 and Royal Decree 9/2017 empowered the tax authorities to inspect documents and records at the taxpayer’s premises during business hours, as part of assessment or collection proceedings, subject to the taxpayer being notified reasonably in advance (at least 10 days prior notice) of the intent of the tax authorities to carry out such onsite inspection.

Recent amendments to the Executive Regulations, however, provide details of the rights and responsibilities of taxpayers and tax officials with special provision empowering the Secretariat General for Taxation (SGT) to enter the taxpayer’s workplace during working hours without advance notification to the taxpayer in cases of suspected tax evasion, Kapoor explained.

Onsite tax inspection, according to the tax professional, is a relatively new provision of the Income Tax Law. However, this was hardly put in practice by the tax officials, with tax assessments being conducted in a more conventional manner of requesting documents and information to be submitted at the premises of the Ministry of Finance.

Before undertaking an onsite tax inspection (except where tax evasion is suspected), tax officials are typically required to notify the taxpayer in advance (at least 10 days) highlighting the date and time of visit, documents and records sought to be reviewed, and tax years under inspection (not exceeding 10 preceding years).

“In fact, even today, most of assessment proceedings continue to be implemented the conventional way — by way of issuance of formal query letters and submission of documentary responses by the taxpayers, followed by discussions with the tax inspector at the tax office (if deemed necessary) until completion of assessment proceedings,” said Gaurav.

In addition to notifying the taxpayer (except where tax evasion is suspected), the tax inspectors are also obliged, under the law, to provide a receipt of the seized documents to the taxpayers, according to the PWC executive. Originals of the seized documents are required to be returned within 30 days (copies of the same can be retained), while the tax authorities can seek assistance if it is revealed that the taxpayer has attempted to hide, destroy or falsify records/documents.

Importantly, taxpayers have an obligation to comply with the inspection team’s demands for access to files and information during onsite inspections — whether notified in advance or unannounced, Kapoor warns.

“Taxpayers are expected to cooperate with the tax authorities during the onsite review proceedings, so as to smoothly facilitate the same, whether by way of furnishing the requested documentation or by way of engaging in discussions with the officials during the review.”

The amendments, said Kapoor, explicitly enable seizure of documents, data, accounts, accounting records, lists of assets, liabilities or other related items, if there are reasons to believe that there has been concealment or falsification of records by the taxpayer, in a suspected case of tax evasion.

“It shall be prudent for the taxpayer to facilitate the onsite review, by cooperating with the tax officers engaged in the review,” he added in conclusion.