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Arbitrary Assessment in a Company Tax Audit

LHP Attorneys at Law: Warding off arbitrary assessments in a company tax audit

A tax adviser or tax law specialist has numerous options to object against arbitrary assessments in a company tax audit. The issue of arbitrary assessments is a hot topic in taxation, particularly in the arena of company tax audits and criminal tax law. The number of arbitrary assessments in company tax audits has risen sharply over the past years. This is not due to an increased neglect in accounting or document retention. It is rather the case, that the approach taken by the Tax Authority and the quality of arbitrary assessments have changed fundamentally, due to the use of sophisticated calculation software by the tax administration. The creativity and skills of company tax auditors should not be underestimated.  Arbitrary assessments can threaten the economic survival of a company and its owners or directors are frequently the subject of criminal proceedings for tax fraud.  

Future intensification of company tax audits?

The significantly improved equipment and training of company tax auditors in the use of audit and calculation software leads to the expectation, that company tax audits will be further intensified in type and scope. This leads to small deficiencies in the compliance of accounts being considered more frequently than used to be. Previously, missing receipts in the cash accounting for advances to the company owner were not even looked at, because the advance was clearly recorded in the cash ledger. Nowadays, a company tax audit will consider this kind of transaction as seriously deficient.  § 158 AO is relevant in these circumstances, which stipulates that the accounts and records generally form the basis for taxation as far as they comply with the statutory requirements, but only in cases where their factual accuracy is undisputed. The importance of the so-called presumption of accuracy as set out in § 158 AO cannot be overestimated.  

Inspection by the Tax Authority

An audit by the Tax Authority will however look beyond factual deficiencies. To undermine the presumption of accuracy prescribed in § 158 AO, tax auditors also look for formal deficiencies. A formal deficiency follows from non-compliance with statutory requirements and the failure to retain documents as set out in §§ 140 to 147 AO. In the individual case, a cash report containing factual deficiencies may lead to a full-scope arbitrary assessment of the company’s revenues. The authority to make arbitrary assessments must however be re-established separately for each year. Deficiencies in the accounts for one year do not support a conclusion, that the accounts for another year are also non-compliant.  

Facts about arbitrary assessments in company tax audits

LHP Attorneys and Tax Advisers inform on the statutory basis for arbitrary assessments in a company tax audit, arbitrary assessment methods and procedures as well as the interface between arbitrary assessments and criminal tax law.

1. Statutory basis for arbitrary assessments in company tax audits

2. Company Tax Audit: Typical deficiencies in accounting

3. Hot topic: Cash discrepancies and their treatment - reason for an arbitrary assessment?

4. Rejection of the accounts by the company tax auditor

5. Arbitrary assessment during a company tax audit - aim and purpose

6. Arbitrary assessments in company tax audits: Arbitrary assessment methods

7. Arbitrary assessment by way of external benchmarking and comparison with indicative rate schedules

8. Arbitrary assessment by way of internal company comparison

9. Other arbitrary assessment methods used in a company tax audit

10. Criminal relevance of arbitrary assessments in company tax audits

Defence against arbitrary assessments / contesting arbitrary assessments

A tax adviser or tax law specialist has many options to intervene and contest arbitrary assessments in company tax audits. This may render the Tax Authority’s arbitrary assessment invalid or reduce it to a more manageable amount. The adviser must carefully examine and analyse the assessments and conclusions of the company tax auditor.  

At LHP Attorneys and Tax Advisers, many of our competent advisers are former officers of the Tax Authority and they support clients in the successful defence against arbitrary assessments made by company tax auditors. The detailed knowledge about the inner workings of the Tax Authority compliments the competence of the advisers and attorneys at LHP.

LHP: Attorneys at Law, Tax Law Specialists, Tax Advisers PartmbB

Cologne

Theodor-Heuss-Ring 14, 50668 Cologne,
Telephone: +49 221 39 09 770

Zurich

Stockerstrasse 34, 8002 Zurich,
Telephone: +41 44 212 3535