Tax Audit Proceedings

Legal framework and key concepts

Tax audit proceedings are regulated in Chapter XV (Art. 110-120) of the Tax and Social Insurance Procedure Code (TSIPC). They comprise a set of actions by the revenue authorities aimed at establishing obligations for taxes and mandatory social security contributions.

Unlike an inspection (Art. 110, para. 2 TSIPC), which cannot independently establish obligations, an audit concludes with the issuance of a tax assessment act — an individual administrative act with direct legal effect. The tax assessment act constitutes an enforcement title under Art. 209 TSIPC and is subject to compulsory enforcement.

When is an audit initiated?

An audit may be initiated when there are indications of incorrect reporting, discrepancies between declared data and third-party information, evidence of concealed income, systematic non-compliance with reporting and payment deadlines, or when cross-checks reveal discrepancies.

• Scope — specific types of obligations for defined periods (Art. 112, para. 1 TSIPC)
• Competent authority — territorial directorate of the taxpayer's registration
• Subject — any taxable person, including natural persons

Stage 1: Audit assignment order

Tax audit proceedings commence with the issuance of an audit assignment order (AAO) under Art. 112 TSIPC. It is the foundational act that defines the framework of the entire proceedings.

Who issues the order?

The AAO is issued by the revenue officer designated by the territorial director of the competent NRA Territorial Directorate (Art. 112, para. 2 TSIPC). In practice, this is the head of the "Audits" unit or another authorised official. The order may also be issued by the NRA Executive Director in cases of particular factual and legal complexity.

Mandatory content of the AAO

• Data on the audited person (name, UIC/PIN, address)
• Auditing revenue officers (named designation of the audit team)
• Head of the audit
• Audit completion deadline
• Scope — specific types of obligations (CITA, VAT Act, PITA, Social Security Code, etc.) and specific tax periods
• Other circumstances relevant to the audit

Service and appealability

The AAO is served on the audited person under Art. 29-32 TSIPC. Important: the assignment order is not subject to independent appeal (Art. 112, para. 8 TSIPC). It may only be challenged within the appeal of the final tax assessment act. This means that even if there are defects in the AAO, the audited person cannot stop the proceedings at this stage.

Stage 2: Conducting the audit

Completion deadlines

The legislature has provided differentiated deadlines depending on the complexity of the audit:

• General deadline — up to 3 months from service of the AAO (Art. 114, para. 1 TSIPC)
• Extension — by a further 1 month by the authority that assigned the audit (Art. 114, para. 2)
• Intra-Community supplies (ICS) — up to 6 months, extendable by a further 2 months
• Particularly complex cases — up to 3 years by decision of the NRA Executive Director (Art. 114, para. 3)

Gathering of evidence

During the audit, revenue authorities have broad powers to gather evidence (Art. 37-56 TSIPC):

• Accounting documents — purchase and sales ledgers, general ledger, analytical trial balances, invoices, contracts
• Written explanations — from the audited person and from third parties (Art. 56 TSIPC)
• Cross-checks — of counterparties to confirm transactions (Art. 45 TSIPC)
• Banking records — bank account statements, loan and deposit information
• Contracts and correspondence — including electronic, related to the audited periods
• Expert opinions — when specialised knowledge is required (valuations, technical opinions)

Burden of proof

In principle, the ex officio principle applies in tax proceedings (Art. 5 TSIPC) — the revenue authority is obliged to establish all facts and circumstances relevant to the determination of obligations. However, Art. 124, para. 2 TSIPC introduces a reversal of the burden of proof in certain situations:

• Where there is concealed or hidden income
• Where accounting records are absent or do not meet requirements
• Where documents contain false information

In these cases, the audited person bears the burden of rebutting the findings of the revenue authorities — an extremely unfavourable procedural position.

Rights of the audited person

• Right to information — to be notified of all actions during the audit (Art. 17, para. 1, item 1 TSIPC)
• Right to present evidence — at every stage of the proceedings (Art. 17, para. 1, item 2)
• Right to a lawyer/tax adviser — to be represented by an authorised person (Art. 10 TSIPC)
• Right to refuse to provide documents that are not relevant to the audited period or type of obligation
• Right to appeal — the final tax assessment act through administrative and judicial channels

Stage 3: Audit report

Upon completion of the audit actions, the audit team prepares an audit report (AR) under Art. 117 TSIPC. The report is an internal act of the administration, but is of critical importance for the subsequent proceedings.

Content and deadline

The audit report is prepared within 14 days of the expiry of the audit completion deadline (Art. 117, para. 1 TSIPC). It contains:

• Full description of the actions performed
• The established facts and circumstances
• The evidence on which the findings are based
• The legal conclusions of the audit team
• Proposal for establishing the obligations

Service

The audit report is served on the audited person within 7 days of its preparation (Art. 117, para. 4 TSIPC). All collected evidence must be appended to the report. Failure to provide the evidence constitutes a material procedural violation and may be grounds for annulment of the tax assessment act.

Stage 4: Objections to the audit report

After receiving the audit report, the audited person has the right to file a written objection under Art. 117, para. 5 TSIPC.

Filing deadline

The deadline for filing an objection is 14 days from service of the audit report. This deadline may be extended to 1 month at the request of the audited person if there is a justified reason.

Strategic considerations

The decision whether and to what extent to file an objection is strategic and requires careful judgment:

• Disclosure of arguments — a detailed objection reveals the defence strategy to the administration, which may allow "strengthening" of the reasoning in the tax assessment act
• Preserving arguments — some arguments may be "reserved" for the judicial phase, where the administration cannot supplement its reasoning
• Procedural violations — should always be raised, as failure to challenge them may be interpreted as tacit consent
• New evidence — the objection is an appropriate time to present additional evidence that was not available or requested during the audit

Our practice shows that a balanced approach — raising the key factual and legal arguments without unnecessary detail — is the optimal strategy in most cases.

Stage 5: Tax assessment act

The tax assessment act (TAA) is the final product of the audit proceedings and constitutes an individual administrative act by which obligations for taxes and social security contributions are established or amended.

Issuance and signing

The TAA is issued within 14 days of filing the objection or the expiry of the deadline for filing (Art. 119, para. 2 TSIPC). The act is signed by:

• The head of the audit — designated in the AAO
• The authority that assigned the audit — unit head or another authorised person

This dual signing is an essential validity requirement. The absence of either signature renders the act null and void.

Service

The tax assessment act is served within 7 days of its issuance (Art. 119, para. 3 TSIPC). This deadline is directory — non-compliance does not vitiate the act, but the delay may be relevant to limitation periods.

Limitation periods

The limitation period for establishing tax obligations is regulated in Art. 109 TSIPC:

• 5 years — general limitation period, starting from 1 January of the year following the year in which the return was filed or was due to be filed
• 10 years — in cases of concealment of tax obligations or failure to file a tax return

After the expiry of the limitation period, revenue authorities cannot issue a tax assessment act. However, expired limitation is not applied ex officio — the audited person must invoke it.

Frequently asked questions