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Purpose and Goals of the Audit

Unlike off-site and on-site tax audits, a cross-audit inspection is not a tax audit but a tax oversight procedure. In essence, companies make information available about their business partners, or tax authorities obtain information from third parties.

The goals of a cross-audit are the following:

• To confirm the existence of a company’s contractor;
• To confirm that business transaction data of match for both the contractor and the audited taxpayer.

Cross-audit results do not lead to binding decisions mandatory for the taxpayer. However, these results may be used as supporting evidence of tax violations.

A tax official conducting s cross-audit has the right to obtain on demand from the contractor documents/data related to transactions between the company and its contractor.

Requested Documents

There is no preapproved list of documents that tax authorities have the right to request in the process of a cross-audit. They may include any paperwork related to the business activity of the audited organization and its partners.

The absence of a preapproved list means that disputes can be made. In each case the court will determine the factual connection of requested documents to the related business activity. However, most decisions come in favor of the auditors.

Moreover, the tax authorities have the right to request from the company documents/data not only in relation to the audited taxpayer, but also to entities without a contractual relationship with the taxpayer if the paperwork is related to the taxpayer’s activity (i.e. that of subcontractors).

At the same time, if the taxpayer has previously provided the documents, the documents generally may not be demanded a second time.

Exceptions to this rule are cases when the documents were provided in originals and later returned to the inspected entity, and when documents presented to tax authorities were lost due to force-majeure circumstances.

Procedural Issues

Document requests must include a specific list of documents and the relation the documents have to the organization’s activity.

Within five days of receiving a document request, the company must deliver the documents or respond that it does not possess requested documents/data. This deadline may be extended at the company’s request.

Failure to deliver the requested documents and/or ignoring the request qualifies as a tax violation and is punishable in accordance with Article 129.1 of the Tax Code.

The request may be delivered to the head (or representative) of the organization by hand (it must be signed for) or electronically. If both of these methods are not available, the request is sent by registered mail and is considered as delivered in six days after the date of dispatch.

According to existing judicial practice, the organization must fulfill the request for delivery of documents (information) even if it was sent in violation of established timeline, regarding this circumstance as insignificant and not in violation of the contractor’s rights.

Documents delivered in hard copy must be submitted as copies certified by the company. Requests for notarized copies (unless specified by the current legislation) are prohibited. If the requested documents were prepared in electronic form according to established standards, the company may send them to the tax authorities in electronic format online.

The tax authorities may demand original documents if needed.

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