Tax inspection is a mandatory, annual and periodic management activity of the state tax authority, aiming to evaluate and verify taxpayers' compliance with tax laws. For any business or individual, receiving a Tax Inspection Decision can cause certain worries. However, instead of being passive, equipping yourself with in-depth knowledge and a well-prepared strategy is the key for taxpayers to proactively control the process, minimize risks, and protect their legitimate interests.
The content is compiled from in-depth consulting experience in Tax, Accounting and Finance, ensuring high accuracy and practicality. All legal citations are based on authoritative sources.
Distinguishing Core Concepts
Understanding the terminology is the first step for taxpayers to understand their rights and obligations when working with tax authorities.
What is a tax audit?
Tax audit is an activity carried out by the tax authority (Tax Branch, Tax Department) at the taxpayer's head office, with the participation of an official tax audit team, carried out on the basis of an audit decision. Tax audit activities often focus on detailed review of records, documents and accounting books.
What is Tax Inspector?
Tax inspection is a form of inspection at a higher level, with a wider scope and a more complex nature, usually carried out by the General Department of Taxation or the Tax Department. Tax inspection is applied to cases with signs of serious violations, of a criminal nature or related to major topics (such as Transfer Pricing, complex cross-border transactions). The results of tax inspection often lead to greater penalties and collection.
What is the desk check like?
Desk Audit is a regular, non-periodic activity carried out at the tax office. The tax office reviews the taxpayer's tax declaration through the data system and requests the taxpayer to explain in writing or meet at the tax office. This is an initial risk screening step before considering conducting an official tax audit.
Legal basis and classification of tax audit
To ensure authority, any tax audit guidance must be based on the existing legal system.
Legal basis
Tax inspection activities are regulated in detail and uniformly in the following documents:
- Tax Administration Law No. 38/2019/QH14: This is a framework law regulating the duties and powers of tax authorities; the obligations and rights of taxpayers, as well as the forms of tax audit and tax inspection.
- Decree 126/2020/ND-CP: Specific instructions on tax management for each type of tax, detailed regulations on filing deadlines, tax payment deadlines, and cases of exemption and reduction.
- Circular 80/2021/TT-BTC: Provides specific and detailed instructions on business processes, risk management and how to conduct tax audits in practice.
Strict compliance with these documents helps taxpayers have a solid legal basis for dialogue with the Tax Inspection Team.
Classification of tax audit forms
Tax audit activities can be divided into three main forms, each with different objectives and implementation methods:
Scheduled (Periodic) Inspection
This is the most common form of tax audit, conducted according to an annual approved list. This list is built on the basis of the tax authority's risk analysis criteria (e.g., businesses with large tax refunds, unusual profit margins, or sudden changes in revenue/expenses). This plan helps the tax authority optimize resources and focus on cases with a high probability of violations.
Surprise inspection
This form of tax audit is triggered when there are clear signs of violations or upon administrative request:
- Check tax refund records.
- Check when a business merges, consolidates, divides, separates, dissolves, goes bankrupt, or changes ownership type.
- When there is a complaint, or there are signs of illegal invoice use.
Subject test
This is a form of tax audit that focuses on a specific tax or issue, without the need to review the entire file. For example, a thematic audit on the use and management of electronic invoices, an audit of compliance with Value Added Tax (VAT) regulations for service exports, or a tax audit related to related-party transactions.
Principles and scope of testing
Tax audit activities must comply with core principles:
- Compliance with the law: The tax inspection team must properly perform its functions, duties, and powers and comply with regulations on order and procedures.
- Publicity and transparency: All tax audit decisions and results must be publicly announced to taxpayers.
- Non-obstructive: Tax audit activities must not seriously disrupt the taxpayer's normal production and business activities.
According to current regulations, the tax audit period is usually the last 5 years (calculated from the year of the audit decision and before). However, if signs of tax evasion, tax fraud or transactions related to foreign countries are detected, the tax audit period can be extended. Taxpayers need to prepare archived records according to the provisions of the Accounting Law to meet this requirement.
Tax audit process details
The tax audit process is divided into three clear stages, requiring taxpayers to actively participate and closely monitor.
Phase 1: Prepare Documents
This is the most crucial stage where the taxpayer needs to act immediately upon receiving notice of an impending tax audit.
- Risk analysis: The tax authority performed a risk analysis on the taxpayer's tax return data to determine the focus of the tax audit.
The tax audit decision is the first legal document that a taxpayer receives. The Decision must fully include:
- Legal basis (Law, Decree, Circular).
- Subject (Name, tax code of taxpayer).
- Scope (Taxes, tax periods).
- Tax audit period (Example: From 01/01/2021 to 31/12/2025).
- Composition of the Inspection Team (Head of the Team, members).
According to regulations, the Tax Inspection Decision is usually notified to the taxpayer about 10 working days before the inspection date.
Note: Upon receiving the Decision, the taxpayer has the right to request a change in the Tax Inspection Team member if there is evidence of a conflict of interest or if the member has a personal relationship that may affect objectivity. This must be done in writing.
Phase 2: Conduct tax audit at Taxpayer's Headquarters
This stage is a direct interaction between the Tax Audit Team and the taxpayer.
On the commencement date, the Head of the tax inspection team will announce the Decision and agree on the work plan. The taxpayer must ensure that the announcement is carried out in accordance with regulations.
Detailed scope of work:
- Check the legality of documents: Review internal documents (Appointment decision, Salary regulations, Internal expenditure regulations), Economic contracts and Liquidation or acceptance minutes.
- Check the validity, legality and legality of documents: Compare the electronic invoice with the General Department of Taxation's Information Portal. Ensure validity (correct form, correct signature, correct time) and legality (actual occurrence).
- Checking accounting and tax declaration: The focus is on comparing the data on the detailed Accounting Books (General Ledger, Detailed Accounts Book) with the submitted Tax Declarations (VAT, CIT, PIT). The difference between these two data sources is where most of the violations that are collected arise.
Any request for documents by the Tax Audit Team should be recorded in writing. The Audit Team should prepare daily or weekly Minutes of Work to record the work done, documents provided and issues that arise. The taxpayer should keep a copy of all these Minutes.
The official time limit for conducting a tax audit at the Taxpayer's premises is no more than 10 working days (for the Tax Branch) or no more than 15 working days (for the Tax Department/General Department of Taxation). In complicated cases, the time limit may be extended but the total maximum time limit shall not exceed 20 working days (Tax Branch) or 30 working days (Tax Department/General Department of Taxation).
Phase 3: Finalization and Processing
This stage determines the taxpayer's financial obligations and legal risks.
- Draft Inspection Report: After completion, the Tax Inspection Team will prepare a Draft Report, clearly stating the violations, the amount of arrears, and the expected fine. Taxpayers must carefully review and initial each page to confirm the content. To ensure the accuracy and legal compliance of the recorded data, many businesses choose to consult experts or accounting services independent before signing.
- Explanation (Important Rights): If the Taxpayer disagrees with one or more contents of the Draft Minutes, the Taxpayer has the right to submit a written explanation of the differences, along with supporting documents and evidence. This is the last opportunity for the Taxpayer to defend its position before the official Minutes are issued.
- Official Tax Audit Report: This document is the basis for the Tax Authority to issue a Penalty or Collection Decision. It officially records the violations, the amount of additional tax payable, and other forms of handling.
- Decision on Penalty or Collection (if any): Details the violations, the taxes to be collected, the administrative penalty, and the late payment penalty (if any), along with the deadline for the Taxpayer to fulfill the obligation to pay money to the State budget.
Checklist of steps businesses should prepare to manage risks
To help businesses implement the process in a clear, systematic and easy-to-apply way, below are 10 practical steps that businesses can apply.
- Check data consistency: Ensure that the figures on the Financial Statements, Tax Declarations (CIT, VAT, PIT) and Accounting Books are completely consistent.
- Review the legality of Expenses: All large expenses must have a Contract, Acceptance Report, Liquidation Report and Non-cash Payment Documents (for transactions over 20 million VND).
- Collect Original Invoices: Check whether input and output electronic invoices have been securely stored, are valid, and compared with tax authority data.
- Fixed Assets (FA) Records: Prepare complete Handover Minutes, Purchase Decisions, Depreciation Records and consistent depreciation policies.
- Reviewing Related Transactions: Prepare the Market Price Determination Documents (Master File, Local File) as prescribed in Decree 132/2020/ND-CP if there is such a transaction.
- Labor Records: Ensure that Labor Contracts, Payrolls, Salary Regulations and payment documents are consistent.
- Arrangement of Archives: All records and documents must be arranged by tax period and tax type, easy to search and extract.
- Assign a representative: Designate a representative with sufficient expertise and authority to work directly with the Tax Audit Team.
- Internal Audit: Conduct an internal audit that simulates the tax authority's tax audit process to detect and correct errors in advance.
- Minutes of internal work: All problems discovered and adjusted during the self-inspection process must be recorded in Minutes.
Conclude
Tax audits are an inevitable part of the legal business cycle. Through this detailed guide, we hope to have equipped you with the necessary professional knowledge and practical experience to face the tax audit process confidently and proactively.
Do you want to optimize your tax and accounting system and reduce risks today? Connect with MAN – Master Accountant Network to be accompanied by a team of experienced experts with professional solutions and processes.
Don't let risks accumulate, take the initiative to protect your business now.
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Content production by: Mr. Le Hoang Tuyen – Founder and CEO of MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
MAN Editorial Board – Master Accountant Network
