If the tax authority concluded the audit of a period with an effective resolution, it does not yet mean that you can sit back and relax, because under certain conditions the period closed with an audit may be re-audited. Naturally, the period closed with an audit may be re-audited within the time limit of the right to impose the tax, and the tax authority cannot go beyond that.
The purpose of this newsletter is to give you some important guidance for any re-audit.
A re-audit is a special audit type, yet the deadlines, the rights and obligations of the tax authority and the taxpayers during the audit are governed by the same rules as a tax audit. Consequently, the tax inspector conducting the re-audit will request the same documents, certificate, data and information as the tax inspector who conducted the initial audit.
A re-audit may only be ordered, if one of the events occurs:
- the tax authority of the first instance inspects the findings of the previous audit in the framework of a follow-up audit.
In this case, the re-audit will be conducted by the first instance tax authority, i.e. the competence will not be transferred to the superior tax authority. The audit has a specific target: it inspects the implementation of the findings of the previous audit.
- at the request of the taxpayer if there is new evidence with any potential to alter the findings of the previous audit, provided that such new facts or evidence did not previously arise, or could not have been at the taxpayer’s disposal if acting in good faith, and they were not known and could not have been known to the taxpayer if acting in good faith.
As it is clear, the tax authority may re-audit a period closed with an audit upon the request of a taxpayer, contrary to the initial audit, which cannot be requested by the taxpayer, if some new fact or information occurs that would alter the findings of the previous audit. In such cases the audit falls within the competence of the first instance tax authority. Based on the request, the head of the first instance tax authority issues an order for the re-audit (if a resolution adopted in a previous audit was reviewed by the second instance tax authority, then the respective order is issued by the head of the second instance tax authority) but necessary a decision may also be made that the conditions of conducting a re-audit do not prevail, and therefore the request is rejected. Legal remedy may be sought against the decision. There are several examples of taxpayers trying to request a re-audit based on the fact that they had found an invoice that they had accepted before and deducted VAT accordingly, but could not produce it during the previous audit due to their negligence. In such cases the head of the tax authority does not order a re-audit because taxpayers are obliged to keep their documents and, if they do not comply with the obligation due to their negligence and are unable to present the documents to the inspectors, they must bear any risk in that regard. Anyhow, their procedure cannot be an action in good faith because they did not fulfil a fundamental tax obligation.
- if the re-audit is likely to result in eligibility for benefits based on the data and information held by the tax authority
In such cases, the re-audit is ordered as an ex officio procedure and is conducted by the first instance authority, otherwise it strengthens the quasi service providing activities of the tax authority.
- oversight inspection conducted by the second instance tax authority.
Most of the re-audits are oversight audits. Contrary to the above, an oversight inspection is always conducted by the superior tax authority because most of them inspect the previous procedure from a legal and professional standpoint. Such oversight inspections are ordered by the head of the National Tax and Customs Administration.
In addition, the head of the National Tax and Customs Administration may order an oversight inspection if any fact or new information arises, which was not available before and which affects any previous tax assessment. The oversight inspection cannot be ordered when 6 months have already passed since the emergence of the new fact or circumstance.
A significantly lower number of oversight inspections are conducted upon the order of the Minister responsible for the tax policy, or the President of the State Audit Office, but the period has already been audited by the first instance tax authority.
If the tax authority proceeding in the oversight inspection establishes a tax payment obligation compared to what was disclosed in the previous audits, the resolution adopted in the course of the previous audit may be altered. An appeal may be submitted to the head of the National Tax and Customs Administration against such an altered resolution and any party intending to challenge the decision of the head of the National Tax and Customs Administration may turn to the court.
It is also important to stress that neither an oversight inspection, nor a re-audit may be conducted in any other form if the court already reviewed a resolution on the findings of a previous audit in an administrative lawsuit.
Finally, a very important provision, namely the prohibition of aggravation must also be indicated. Accordingly, if a resolution has been adopted in conclusion of a previous audit, no new resolution changing the tax liability, the tax base, the tax amount, the base and amount of central subsidy to the detriment of the taxpayer may be adopted more than one year from the time when the audit was concluded. It is an exception from the above rule when the audit was ordered by the Minister responsible for the tax policy, or the President of the State Audit Office, or the head of the National Tax and Customs Administration ordered an audit due to the emergence of any new fact or circumstance that were not available in the previous audit and affect the tax liability.