ENTREPRENEURIAL RIGHTS IN AN SRS AUDIT: 6 RECOMMENDATIONS

At least for now, the statistics are not on the side of entrepreneurs, as a tax audit conducted by the SRS ends with an additional tax assessment in 95% of cases… An audit can affect any taxpayer.
However, we have managed to protect our clients from assessments many times, so we view this situation with optimism!
It is not always possible to find out why a decision was made to start a tax audit, as it is restricted access information. Most likely, such a decision is related to the occurrence of a risk regarding transactions that the SRS considers suspicious for the taxpayer or their partner.
It should be noted that any long-standing company can find itself in such a situation. Only those who do nothing make no mistakes!

#1 You will have 10 business days to prepare

The SRS is obliged to inform the taxpayer about the start of an audit in writing at least 10 business days in advance, specifying the start date of the audit, the audit term, the taxes to be checked, the tax return items, the duties to be checked or other state-determined payments and taxation periods, as well as informing whether the compliance of the transfer price with the market price (value) of the transaction will be checked.
Notification of the decision usually takes place in the EDS system. The decision to start an audit is not subject to appeal; therefore, ensuring that an audit will not be carried out is almost impossible.

#2 During this time, you can still manage to correct yourself

After receiving the notification from the SRS about the start of an audit, the taxpayer may decide to voluntarily make corrections or clarifications in their tax returns. The taxpayer is granted this right until the start of the audit. If the taxpayer believes that all submitted tax returns are correct and the SRS could not find other violations, all that remains is to prepare for the tax audit, for example, by organizing the accounting documents related to the audited period in accordance with the requirements of regulatory acts.
Also, depending on the tax being audited, increased attention must be paid to the transactions that have taken place. For example, if value-added tax is being audited, transactions and transaction partners in the audited period must be checked, and an effort should be made from the outset to identify transactions that the SRS might want to analyze in depth or question. Often, this is clear to the taxpayer themselves upon receiving the notification.

#3 You can postpone the start of the audit

Things happen in life. For example, if you have already bought tickets to Mallorca for a vacation, are on a long-term business trip, or there are other reasons why you as a taxpayer cannot (or do not want to) allow the audit to start at the time set by the SRS, then you have the right to request the SRS to set a later date. Although the SRS has no such obligation, the SRS usually respects the requests made by taxpayers to change the audit start date if they are reasoned.

#4 You can request explanations regarding changes to audit conditions

The SRS may at any time, on its own initiative, change the taxes to be checked, tax return items, taxation periods, etc. In practice, the SRS uses its right to change audit conditions regularly; therefore, the taxpayer cannot rely on the fact that if an audit has started, for example, only for VAT, the SRS will not check other taxes.
The decision to change audit conditions also cannot be appealed. Usually, the SRS changes the taxes to be checked, for example, if during the audit the auditors have obtained information that raises suspicions that the taxpayer may have acted unlawfully in relation to the payment of another tax.
For example, the SRS initially arrived to audit salaries, but during the audit process, after receiving contradictory information from interviewed employees about receiving various hidden benefits from the company, they may start a VAT and CIT audit. Thus, every change in audit conditions must be carefully analyzed, and the taxpayer, together with their accountant, should be able to conclude or find out the justification for the respective SRS decision in order to effectively defend their interests under the new circumstances.

#5 You can request to cancel the audit results

In the general case, a tax audit must be completed within 90 days after its commencement. Unfortunately, in practice, this rarely happens in complex cases, as the SRS regularly uses its statutory right to extend the audit term.
Failure to comply with the deadline during the audit cannot be appealed. If the SRS fails to meet the deadline, it can be a reason for the SRS decision on the audit results to be canceled later. According to case law, for example, conducting an audit longer than specified by law does not automatically make the SRS decision in the audit case revocable. However, if the audit term has been exceeded, thereby allowing a procedural violation, and the SRS cannot properly justify the reasons for the delay, the SRS decision on the audit results is revocable according to case law.
The SRS decision on the audit results is also revocable if, during the audit, the decision to extend the audit term was made by officials who were not authorized to do so. The result of an SRS audit is also revocable if, for example, as the statutory audit deadline approaches, the SRS makes a request for information from foreign countries that is obviously insignificant to the audit, in order to formally gain the right to extend the audit term by up to 60 days.
There have also been cases where the SRS conducts an audit lasting more than a year, justifying it with a cross-border tax check. However, if the taxpayer has managed to obtain information about the actions taken in this tax audit, and it can be concluded that cooperation with the foreign tax administration is not actually taking place and the long time is being used to conduct checks and actions right here in Latvia, then—if the taxpayer can prove that the tax audit was extended and conducted for an unjustifiably long time—it can be a reason for the cancellation of the subsequent SRS decision.

#6 You can appeal the decisions

The audit concludes with a decision by an SRS official, which establishes that no violations have been found in the taxpayer’s actions, or with a decision on additional payments to be made to the state budget. The official’s decision is subject to appeal to the Director General of the SRS. At this stage of the process, a face-to-face conversation with the SRS decision-makers is possible for the last time within the institution. The taxpayer is advised to use this right to discuss disputed issues and understand the position of the SRS. It is advisable to invite a specialist familiar with tax administrative processes to the conversation. By listening to the opinion of the SRS representatives, it is possible to conclude whether it is desirable to submit additional evidence or explanations in the case, and this should be done. If the decision of the Director General of the SRS is also unfavorable to the taxpayer, it can further be appealed in court.
P.S. Next time you will find out which 15 risks every accountant should report to the SRS!

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