Today, there is insurance for almost everything. Why do we even insure ourselves? Most of the time, it is to reduce our risks in case of an unexpected situation that arises in our lives, because we would not be able to face such a situation on our own without help. But is there insurance against tax inspection? Unfortunately not, but there are steps you can make correctly both before and during a tax inspection to effectively reduce your risk (penalties). But is the tax inspection such a big risk?
Find out more in the article prepared for you by our experts in tax administration, tax audits and representation of clients in tax proceedings at various levels.
Statistics are clear
Tax inspection is generally an unpleasant matter from the point of view of the inspected entity (legal person) because it is an intensive interference of the state into the freedom of business and property of the audited entity.
It is evident from the statistics of the Financial Administration that the efficiency of tax inspections of the Financial Administration is increasing year by year. When the current three-year period of 2018, 2019 and 2020 is compared with that of 10 years ago, we find that the number of tax inspections has halved, but the amount of findings from tax inspections is higher. This clearly shows that tax inspections are more efficient from the point of view of the tax administrator, but all the more demanding for the taxpayer who is inspected. VAT is still the most dominant tax in terms of inspections, but in the last two years the tax administrator has started to focus on the inspection of taxes other than VAT, especially the income tax of natural persons and legal persons.
Number of tax inspections, tax inspections with findings and VAT inspections
| Description/year | 2008 | 2009 | 2010 | 2018 | 2019 | 2020 |
| Number of tax inspections | 21,357 | 19,820 | 18,400 | 10,528 | 12,502 | 12,732 |
| Amount of the findings of completed tax inspections (in thousand EUR) | 380,868 | 435,549 | 556,278 | 618,611 | 776,149 | 708,111 |
| Out of which VAT (in thousand EUR) | 242,889 | 304,619 | 424,437 | 462,227 | 409,921 | 387,581 |
| Out of which VAT (in %) | 63.77% | 69.94% | 76.30% | 74.72% | 52.81% | 54.73% |
Own analysis based on the Financial Administration data
The probability that something will be found is much higher
Looking at the statistics that we have compiled based on data from the Financial Administration, it is clear who “draws the shorter straw.” It is, of course, the taxpayers who must pay due to the lack of necessary documentation and professional third-party representation. It is increasingly evident that tax, accounting and auditing activities nowadays need to be left to professionals who have years of experience and know how to deal with tax inspections. Legislation in each of the above-mentioned areas is changing very dynamically, which is why it is now almost impossible for companies to focus on these areas in addition to their core business activities.
Number of tax inspections on selected areas and tax inspections on selected areas with a finding
| Year/ description | Number of VAT inspections | Number of VAT inspections with a finding | Number of corporate income tax inspections | Number of corporate income tax inspections with a finding | Number of personal income tax inspections | Number of personal income tax inspections with a finding | Compliance with the provisions of the Accounting Act | Compliance with the provisions of the Accounting Act – with a finding |
| 2018 | 5272 | 3345 | 1436 | 1226 | 760 | 576 | 367 | 270 |
| % of inspections with a finding | 63.45% | 85.38% | 75.79% | 73.57% | ||||
| 2019 | 5985 | 4195 | 2961 | 2459 | 645 | 504 | 331 | 284 |
| % of inspections with a finding | 70.10% | 83.05% | 78.14% | 85.80% | ||||
| 2020 | 5488 | 3952 | 3862 | 3389 | 558 | 440 | 326 | 288 |
| % of inspections with a finding | 72.01% | 87.75% | 78.85% | 88.34% | ||||
Own analysis based on the Financial Administration data
Be careful about dependant activities
In the last two years, the number of inspections focusing on dependant activities has increased quite significantly. When inspecting income tax from dependant activities, the tax administrator may inspect the employer – a legal or natural person and the employee who has not requested an annual tax return but has filed a type A tax return. For example, the tax administrator may check the actual advance payments made in relation to the date of the tax obligation and the amount of the advance payments withheld. The percentage of tax inspections focusing of dependant activity with a finding compared to the total number of tax inspections focusing on dependant activity has been very high over the last two years.
Number of tax inspections on dependant activity and tax inspections on dependant activity with a finding
| Year/description | Number of dependant activity inspections | Number of dependant activity inspections with a finding |
| 2018 | 45 | 33 |
| % of inspections with a finding | 73.33% | |
| 2019 | 265 | 247 |
| % of inspections with a finding | 93.21% | |
| 2020 | 228 | 209 |
| % of inspections with a finding | 91.67% | |
Own analysis based on the Financial Administration data
Among other important areas, we must also mention transfer pricing, where tax inspections in 2020 resulted in a finding in 83% of cases.
Conclusion
From our own experience, we can say that the success of preparation for a tax inspection lies mainly in the quality and quantity of documents, information and their professional processing. It is therefore advisable to consider early in the tax inspection whether it is not appropriate to be represented by experts who will save you time, stress as well as money spent on high penalties.
