5 REASONS WHY YOU NEED A TAX REVIEW
It is currently a time of gradual simplification of tax accounting in Ukraine. The convergence of corporate profit tax with accounting, the simplification of the calculation of payroll taxes and the positive practice of VAT refunding have alr eady reduced the time that companies need to pay taxes. In addition to t he above, there is als o a certain liberalization of the practices of the fiscal authorities, or moreover there are unexpectedly relaxed interpretations of t ax legislation. At f irst glance, one might even get the impression that the fiscal service’s activities are directed at improving the investment climate in Ukraine. However s uch a t rend of lib eralization c ould easily mislead taxpayers and give them a f alse sense of security. An analysis of tax disputes with the fiscal authorities shows us that they have expanded the range of issues that are of in terest during t ax audits, and shows a deeper comprehension of such is sues. The myth that the fiscal authorities do not understand the specifics of acc ounting should been forgotten. Today we are seeing a clear trend of an increase in the number of companies requesting tax advisory services and tax reviews. Nevertheless, for most taxpayers, such services are still little-known and often confused with those involved in a classical financial audit. We will try to show that a tax review is relevant not only for large companies, but for all taxpayers, including individuals. And we will provide more detailed cases in which you may need a tax review.
1. CHANGE IN MANAGEMENT OR FINANCIAL TEAM
Most often the reason companies apply for tax review services is that there is a change in their management (financial director, chief accountant, etc.). Tax reviews make it possible to identify potentially risky areas and provides a comfort zone for the new management. Sometimes it may even identify cases of fraud and abuse by responsible persons. An additional bonus of such a review is that it can be an assessment of the employee’s competence. In our practice, there were cases in which after a tax review, there were changes made in the financial team, with some employees being promoted, and some even dismissed.
2. M&A AND LIQUIDATION
In second place among clients is pre-investment due diligence. Often target investee companies are local Ukrainian business that have never been audited. Obviously, nobody wants to invest in a company if it leads to additional taxes and penalties being accrued. Tax risks in particular are the most common reason for adjusting the value of a deal, or even abandoning it. Along with this, one of the reasons the fiscal authorities carry out unplanned tax audits is because the procedure of reorganization or liquidation of a legal entity has been started. Usually, in such cases, taxpayers themselves insist on a tax audit and run into difficulties because the inspection is postponed by the fiscal authorities. Primarily, companies that have not been audited by the fiscal authorities should consider undergoing a tax review.
3. CHANGE OF TAX LEGISLATION OR POLICIES OF FISCAL AUTHORITIES
Ukraine’s tax legislation is contrantly changing. Its application often requires additional interpretations and recommendations from the fiscal and other official authorities. The latest radical changes in the corporate profit tax laws brought tax and accounting recording in Ukraine closer, which, as a result, substantially simplified accounting and tax payments for business. However, as practice shows, many companies may face problems with the competence of the accounting staff and the consistent application of accounting policies and standards in daily transactions. There are also regular cases of inconsistent interpretation and application of legislation by the tax authorities. Tax consultants have a wide experience of challenging what are sometimes rather creative interpretations of the fiscal service.
4. PREVENTIVE MEASURE BEFORE TAX AUDITS BY FISCALS
As it is known, from 2017 the fiscal authorities must publish an annual schedule of planned tax inspections on their official website. We hope that the appearance of your company in the list may not be the cause of unnecessary worry, but we recommend preparing in advance for a planned visit from the fiscal authorities.
5. SUPPORTING THE CLIENT’S TAX TEAM
The practice of conducting tax reviews shows that even in large companies, the specialists responsible for accounting and taxes are often in an “informational vacuum” due to the lack of time and the high volume of work. Often, a client’s tax team relies on their previous experience, on the results of preliminary audits, or advice from their colleagues when assessing tax risks, without taking into account changes in legislation or recent tax practices. In this case, this becomes a kind of vicious circle, which is best broken by involving a third party – a tax advisor. Particular attention to this should be paid by the small companies that cannot afford high costs for employee education. Given the specifics of activities and the volume of transactions, conducting external tax reviews for them is even more relevant, although with a lower frequency (for example, once every 2-3 years) Tax audits by the fiscals are not the most pleasant experiences in a company's life, regardless of who initiates them. But, one should understand that there is a way to be ready for them, and to avoid penalties. The conducting of a tax review in a timely manner can be a profitable investment that generates a return immediately after it is carried out.
Iegor Synytsyn Senior tax adviser at EBS