Tax compliance check/inspection is a procedure conducted based on the law, which verifies the reliability of the statements, the accounts, calculations laid down with regard to taxes and other mandatory payments, initial data, other documents submitted by an economic entity, as well as the compliance of the actual activity of an economic entity with the requirements of the laws and other legal acts.
There are subject inspections, which are aimed at reviewing the actual condition of specific elements in the activities of the economic entity and complex inspections, which are aimed at reviewing the overall financial-economic condition of an economic entity.
Procedure for conducting tax inspection
Prior to commencing the tax inspection, the head of tax authority shall issue an order or instruction on conducting the inspection.
In cases of tax compliance check/tax inspection by tax authorities with respect to using excise stamps and cash registers, initial data and correction coefficients as defined by the law on presumptive tax, foreign exchange offices and currency dealers-brokers, entrepreneurial activities carried out without state registration and (or) a corresponding license (permit) and in cases of tax inspections aimed at revealing non-registered employees, the power to issue orders or instructions may be transferred to the head of tax inspectorate upon the decision of the head of tax authority.
Two copies of the order or instruction shall be given to the head of the economic entity or his or her alternate, three working days prior to the commencement of inspection, except for supervision of compliance with the mandatory requirements provided for the organisers licensed (permitted) to organise lotteries, prize games, casinos and pawnshops; in case of tax inspection by tax authorities with respect to the use of excise stamps and cash registers, initial data and their correction coefficients as defined by the law on presumptive tax, foreign exchange offices and currency dealers brokers, registration of delivered, provided, transported or sold products, goods, entrepreneurial activities carried out without state registration and (or) corresponding license (permit), application of laws governing currency relations and other legal acts adopted on the basis of those laws, registration of currency purchase or sale transactions by foreign exchange offices or currency dealers, production residues belonging to simplified tax-payers, accuracy of mandatory social security payments (including running a registry of employment contracts with paid employees) established by point “i” of Article 15 of the Law of the Nagorno-Karabakh Republic.
The head of tax authority must put a signature on one copy, confirming thereby that he or she has been notified about the inspection
Time Period of tax compliance check/inspection
The period of tax compliance check/inspection of an economic entity may be defined as not more than 15 consecutive working days per year. The inspection period must not exceed the period mentioned in the order or instruction. If necessary, the period mentioned above may be extended upon the order or instruction of the head of relevant public authority based on a written substantiation of the official carrying out the inspection up to 10 consecutive working days, whereas for economic entities which, in the reporting year, have declared sales turnover of 500 mln AMD and (or) gross revenue of 50.0 mln AMD and more, the period may be extended up to 20 consecutive working days. The total duration of the actual period for carrying out inspection may not exceed 30 consecutive working days, and as for economic entities which, in the reporting year, have declared sales turnover of 500 mln AMD and (or) gross revenue of 50.0 mln AMD and more, the period must not exceed 45 consecutive working days (excluding the suspension period).
Repeat tax inspection is an inspection executed by the authority conducting checks at the same economic entity for the second time (double ) within a year, except for cases of inspection prescribed by law, where repeat inspections are carried out more than once.
Repeat inspections are conducted in case of grounds envisaged by law (when liquidating an economic entity upon the request of the head of the economic entity upon a written instruction of the Prime Minister of the Nagorno-Karabakh Republic, counter-inspection or examination, in case economic entity challenges the findings of the inspections/compliance checks, etc.).
Summarizing the Findings of Tax compliance checks/Inspection
A record or a statement based on inspection findings shall be drawn up. In case of detecting violations and deficiencies based on inspection findings and inspection record shall include the detected violations, the legal rules the requirements of which have not been complied with, the exact time of violation, reference to relevant documents, corresponding legal grounds for imposition of liability. If one of the parties refuses to sign the record, a corresponding note shall be made in the record. The period for signing the record or putting forward disagreements by an economic entity shall not exceed three working days.
Where no violations and deficiencies are detected, a statement shall be drawn up indicating the date and place of drawing up the statement, the names of the relevant public authority carrying out inspection and of the economic entity, the composition of persons carrying out inspection, the purpose, period and findings of inspection
The officials of the economic entity shall be entitled to:
- prohibit the inspection (provision of documents to the persons carrying out the inspection), if the persons carrying out inspection fail to follow the requirements of this Law, by submitting a written notice to the public authority carrying out the inspection on the given day;
- familiarize with inspection records;
- provide explanations, clarifications, file motions, appeal the actions of the persons carrying out tax inspections in accordance with the law;
- demand compensation of damages inflicted as a consequence of unlawful acts of persons carrying out tax inspection;
- refuse to comply with requirements that are beyond the scope of the powers of the persons carrying out tax inspection, the purpose and programme of tax inspection;
- at any stage of the tax inspection involve specialists , experts, auditors, lawyers with a view to protecting the interests of the economic entity subject to tax inspection.
The officials of the economic entity shall be obliged to:
- refrain from hindering the the tax inspection process, comply with the lawful requirements of persons carrying out tax inspection;
- submit, upon the request of the person carrying out tax compliance check/tax inspection the required documents, data, provide photocopies (costs of photocopying shall be covered by the authority carrying out the appropriate tax compliance checks/tax inspections), copies thereof and other information. The documents shall be returned to the economic entity as soon as the request is withdrawn but no later than within one year;
- provide necessary conditions for the activity of persons carrying out tax inspection;
- eliminate, within the defined time period, deficiencies and violations specified in the record of tax inspection findings, notifying thereon, in writing, the authority carrying out tax inspection
Examination is an internal procedure conducted by the authority carrying out tax inspection at the inspection bodies/authority, with the purpose of determining the financial state and state of actual activities of an economic entity based on the balance sheet, financial and other accounts.
An examination may be conducted with the purpose of set-off and return of the amounts (over-payment) in excess of tax liabilities or liabilities for mandatory payments, conduct of test purchases and production of goods, extraction and realization of mineral wealth, volumes of turnover of goods and delivery of services, as well as with the purpose of measuring the actual sales prices (tariffs) (including average), etc.
Tax authorities may carry out off-site (desk) examinations of the statements as well as of information defined by the legislation with regard to accounts, calculations, declarations, and initial data submitted by an economic entity to the tax authorities without visiting an economic entity.
Off-site examination is aimed at verifying the accuracy of tax calculations, the figures, data and arithmetical calculations of the same accounts, the consistency of comparable figures or information available in different accounts, as well as the consistency of the figures and information disclosed in accounts with the information obtained from competent public authorities according to the procedure prescribed by law.