How to Cooperate with the SRS During an Audit!?

To begin with, it is advisable for the entrepreneur to cooperate in the SRS audit process. Do you know exactly what to do and what not to do?

Prepare Thoroughly for the Initial Interview

In our practice, there are often cases where the SRS, analyzing the information provided during the initial interview in conjunction with information obtained later in the audit, concludes that the taxpayer has already provided contradictory explanations during the initial interview regarding the transactions contested in the audit.

Treat Cooperation Partners to Lunch Before the Audit

The initial audit interview is an integral part of the audit, during which broader information is obtained about the taxpayer’s economic activity, accounting records, transaction partners, and the like. Providing poorly considered information during this time can negatively affect the audit result.

It is crucial to carefully consider the information provided during an SRS audit. When requesting information, the SRS sets a deadline for its submission. Therefore, it is particularly important to provide explanations that are as detailed as possible, having thoroughly reviewed the information presented in them beforehand, as the SRS will meticulously examine it.

Pursuant to the laws and regulations of the Republic of Latvia, the SRS has the right to obtain additional information during an audit not only from the taxpayer being audited but also from its cooperation partners, current and former employees, and to conduct observation of your economic activity. Therefore, it is essential that the information provided by your cooperation partners and other persons is not vague or contradictory. Conversely, the fact that an explanation states the provider does not remember the course of the disputed transactions because they occurred, for example, several years ago, will be perceived negatively by the SRS.

Cooperation is Cheaper Than Ignorance

It must inevitably be taken into account that if a taxpayer avoids the audit, fails to provide the information necessary for the audit, or obstructs the auditors, the SRS is entitled to impose various sanctions, such as drawing up an administrative violation report for a board member or initiating a ban on holding a board member position for up to three years. Such circumstances can also negatively affect the audit result.

Furthermore, if during the audit the taxpayer—represented by its representative or board member—has not cooperated with the SRS or the amount of taxes payable to the budget cannot be determined in the audit, the SRS is entitled to determine tax payments on the basis of an assessment.

What does this mean? In such a case, the SRS determines the amount of taxes payable to the budget on the basis of an assessment, taking into account the information at its disposal. It should be noted that results obtained by the SRS through indirect assessment will never be as accurate as if the taxpayer had carefully presented their accounting data to the SRS and fulfilled their duty of cooperation.

Audit Deadlines

According to Section 23 of the Law “On Taxes and Duties,” an audit must be performed within 90 days from the date it was started. At the same time, regulations allow the SRS the right to extend the audit period by a further 30 days if additional information is required for the audit, and by a further 60 days if information is required from foreign tax administrations or other competent foreign authorities, or from a taxpayer undergoing a transfer pricing audit.

A distinction must be made here between an extension of the audit period and the exclusion of a specific period from the audit timeframe. The following are not included in the audit period:

_the period from the day when foreign tax administrations or other competent foreign authorities are requested for information regarding the taxpayer’s economic activity in foreign countries, until the day the reply is received,
the period by which the taxpayer has exceeded the deadline for submitting information requested by the tax administration,
the period d uring which the audit could not be performed due to the ab sence of the taxpayer or its au thorized persons,,
the period when information has been requested from the taxpayer within the framework of a transfer pricing audit, until the day the response is received._

Read the Final Minutes Carefully

The conclusion of the SRS audit process is the official’s decision on the audit results. Before the audit decision is made, the SRS draws up and sends the minutes of the final audit meeting, which should be read carefully and in detail before the final meeting. It reflects the findings of the audit and provides an opportunity to present arguments to justify one’s position.

Although arguments expressed during the final audit meeting are most often rejected by the SRS for formal reasons, there are cases where, upon the taxpayer carefully reviewing the minutes of the final meeting, providing detailed explanations, and submitting documents confirming the transactions, the SRS reduces the projected tax amount payable to the budget or increases the amount to be refunded from the budget accordingly.

The principle of taxpayer cooperation in SRS audits stems from both the laws and regulations of the Republic of Latvia and current judicial practice in contesting SRS audit results. Namely, the taxpayer—the board member or their authorized person—should actively participate in the tax audit process from the very beginning, communicate with the SRS in a methodologically correct manner, and actively submit evidentiary documents to the SRS, while actively and, most importantly, accurately explaining the actual circumstances of the disputed transactions identified by the SRS. Only with such an approach is it possible to achieve a positive result for an SRS audit!

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