Under an automated tax audit, all requests from the ETA and submissions by the taxpayer are intended to be fully automated. The selection/identification of taxpayer files for TP audit purposes will also be subject to an automated risk assessment process, which essentially follows the same risk assessment criteria currently in place, but that is built into the portal through a risk assessment tool.
At the initiation of a CIT audit process, the ETA’s portal employs a TP risk assessment tool to evaluate and classify the taxpayer's file into high, medium, or low TP risk categories. In the event that a file is designated as high risk, it is automatically transferred to the TP unit for inspection. Through this examination, the TP adjustment, where applicable, is computed and subsequently integrated into the overall audit outcome.
The taxpayer is notified through the ETA's portal about the initiation of a TP audit. The portal provides a streamlined platform for monitoring and responding to requests from the ETA. Subsequent communication and document requests from the ETA are conducted through the portal. The TP auditor is allowed to make information requests twice during the entire process. The taxpayer is provided a five- and 10-day timeframe, for the first and second requests respectively, to submit the necessary documentation online from the date of the request, and if the taxpayer needs additional time, the timeframe is extendable to an additional corresponding five and 10 days, contingent upon approval by the ETA.
The aim is to complete the entire process within 75 days (comprising 60 days for the TP unit assessment and an additional 15 days for document submission), extendable to 90 days if the taxpayer was granted an approval for timeframe extension requests, described above.
Following the audit, the taxpayer is promptly notified of the results, through the portal. This notification includes an assessment order detailing any TP adjustments, where applicable, and specifying the resulting tax amount payable by the taxpayer.
If the taxpayer disagrees with the tax assessment determined by the ETA, it retains the option to file an appeal within 30 days from receiving the assessment form through the portal. The appeal submission is required to furnish precise details pertaining to all contested elements outlined in the tax assessment, accompanied by substantive reasons supporting the appeal. For TP audits, this will be administered via paper submissions to the ETA, and it is anticipated that the internal committee will reroute the file to the TP unit, with the file assigned to another inspector to reassess the case.
The automation process is being implemented according to a phased plan. Currently, the Large Taxpayer Centre has completed the automation process. Next in line are the second-largest tax offices, such as the Public Taxes Mission – Corporations and Investment. The inclusion of the internal committee phase for TP audits and the appeal committee phase under the automation project is not yet in progress.
In view of the audit process referred to in part one of this series and recent developments associated with the newly introduced automated process, and to instil confidence during a TP audit, it is crucial for taxpayers to take into account the following key areas:
TP audits have become an integral part of the tax audit process, and are no longer considered an exception but are triggered by specific factors identified in a taxpayer’s file. In light of these developments, it is highly recommended that taxpayers maintain comprehensive supporting documents of their TP practices throughout the audit process. These documents should align with, and substantiate, the facts outlined in the TP documentation package. This becomes particularly crucial as companies move towards automated audits, where face-to-face interaction between taxpayers and the ETA are limited. In such scenarios, readily available supporting documents serve as the primary line of defence for a company undergoing audit scrutiny.
While automated audits have commenced, the project is planned to be implemented in phases. The upcoming phases should encompass the inclusion of other tax offices, and subsequently cover the remainder of the audit process.
