Field Audit

Legal Assistance and Tax Advice in Field Audits

A field audit aims at assessing or verifying the tax affairs of a taxpayer. Its scope may include one ore more types of taxes, one or more taxation periods or specific circumstances. If it is limited to payroll tax, it is called payroll tax audit. If limited to sales tax, it is called a special audit on sales tax. A field audit must determine and assess all circumstances, whether they are beneficial or detrimental for the taxpayer. The goal is to ensure the consistent application of tax law. As tax law specialists, tax advisers and attorneys, LHP Attorneys offer legal and taxation advice as well as legal representation prior to, during and after field audits.

Field audits and reviews

Reviews need to be distinguished from field audits. A payroll tax review (§ 42g EStG) and a sales tax review (§ 27b UStG) will be conducted on site and during regular business and working hours without a prior notice. If inconsistencies are detected, a review may be upgraded to a field audit. An audit notice is then no longer required. The tax auditor must notify the taxpayer of upgrading the proceedings to a field audit in writing and specify the scope of the audit.

Rights and obligations of the taxpayer

The taxpayer has a number of rights and obligations in respect of a field audit. The start date of a field audit may deferred for important reasons as set out in § 197 Sec 2 AO. The field auditor must identify himself by showing his official ID document (§ 198 AO). The first investigation measure taken by the auditor commences the audit. The taxpayer is under a duty to cooperate in a field audit. A suitable room and the necessary tools must be provided to the field auditor free of charge (§ 200 Sec 2 AO). He must be furnished with records, accounts, business documents and other material. The taxpayer must provide the explanations necessary to understand the the records.

Digital tax audits are common practice

Digital tax audits have become common practice by now. Since January 2002, Companies are obligated to archive their tax-relevant data and make them available at any time for the purpose of company tax audits. The application rules for the implementation of access rights to computer systems in companies are regulated by the GDPdU (Principles for data access and audit of digital documents).

Taxpayers are entitled to a final conference in which the audit results will be explained, but only if the audit results assessed by the tax auditor deviate from the previously assessed taxation bases. The taxpayer will be provided with an audit report outlining the audit result. The audit report is also furnished prior to the assessment for taxation purposes, giving the taxpayer an opportunity to respond to the findings within a reasonable time. Legal remedies are not available for audit reports. Legal remedies are only available in respect of the subsequently issued tax amended tax assessment notices. If the result of the field audit does not lead to a change of the tax bases, the taxpayer must be notified respectively.

If only a brief field audit as set out in § 203 AO is conducted, the final conference will be omitted. In this case, the audit results will be provided by way of amended tax assessment notices. LHP Attorneys recommend to have an eye on the precise course of events during a field audit. If the tax auditor raises a suspicion of a tax offence or a tax misdemeanour, he is only permitted to continue the field audit once the taxpayer has been notified of the commencement of criminal tax proceedings or proceedings in respect of a fine (§ 397 AO). The Tax Authority is not longer entitled to demand cooperation in respect of circumstances, which are subject of criminal proceedings (§ 393 Sec 1 lit 2 AO). A refusal to cooperate may nevertheless result in detrimental tax ramifications, such as the arbitrary assessments of tax bases (§ 162 AO).