A taxpayer has various legal remedies available at different stages of a tax audit. The most important of these remedies are the right to be heard, the right to receive information, the right to use a representative and the right of appeal.
As provided in section 14 of the Act on Assessment Procedure, the taxpayer must be notified in advance of the starting time and place of a tax audit, unless there is a special reason to proceed otherwise. This gives the company an opportunity to prepare and ensure that the necessary materials are available. The authority may deviate from this advance notice only in exceptional cases.
As provided in section 2 of the Decree on Assessment Procedure, the taxpayer must where possible be informed during the audit of its objectives, its progress and any further steps and the matters that arise during the audit must be explained to the taxpayer.
As provided in section 14 of the Act on Assessment Procedure, at the Tax Administration’s request the taxpayer must present for inspection in Finland their bookkeeping, notes, everything related to their business or other income earning activity and any other material and property that may be needed for their taxation or for handling an appeal concerning it. However, the auditor cannot request just any material it must be necessary for carrying out the tax audit.
In a tax audit the burden of clarifying matters is shared between the taxpayer and the auditor. The taxpayer must participate in clarifying audit related matters to the extent possible. Sufficient time must be given for providing explanations and this time can also be extended at the taxpayer’s request. It is the taxpayer’s duty to show that an accounting transaction relates to business activity. It is the Tax Administration’s duty for example to show that some income is missing from sales recorded in the bookkeeping.
A closing discussion is held at the end of the tax audit where the auditors present their findings and any matters that may still require further clarification from the company. The taxpayer should be given the opportunity to prepare for this discussion by receiving a summary of the findings and planned tax measures in advance. Actively participating and presenting own position with justification during the audit can significantly affect its outcome.
After the tax audit report is completed the taxpayer is given the opportunity to be heard before the tax decision is made. The taxpayer is always heard if the audit report proposes measures. When hearing the taxpayer they must be told which matters in particular they should provide explanations for. In practice the taxpayer is asked to respond within a set deadline to the matters raised in the audit report.
Good tax audit practice must be followed at every stage of the audit. Good practice includes the audit proceeding according to established stages, the taxpayer being heard during the audit and a tax audit report being prepared. The audit must also be carried out so that it causes as little disruption as possible to the taxpayer and their business.
The taxpayer has the right to use a legal representative for assistance during the tax audit. Tax legislation is complex and open to interpretation which is why it is worthwhile to bring in an outside advisor who can help identify the necessary materials and assist with preparation.
Another legal remedy available to the taxpayer after the audit is the right of appeal. A tax decision is always first challenged through a request for adjustment handled by the Board of Adjustment. If the taxpayer is dissatisfied with the adjustment decision they can further appeal to the Administrative Court. From the Administrative Court’s decision the taxpayer can appeal to the Supreme Administrative Court if it grants leave to appeal.
Even though tax authorities have extensive supervisory powers the taxpayer also has strong legal remedies at every stage of the audit and afterward. The earlier ambiguities are resolved the more smoothly the audit proceeds.