What is Tax Audit
Tax audit is enterprise income tax calculating. To be specific, it generally means the service provided by tax agencies, in which tax accountants conduct audits on enterprises’ matters of finance and tax and after which adjustment of tax declaration will be made. When the tax audit has be finished, the tax agencies will investigate the result.
Benefits of tax audit
1. To make up for loss and reduce tax amount of enterprises.
According to Cooperate Income Tax Law of PRC, the enterprises suffer losses in a year can have the next five years to make up for the loss. That is, that part used to make up for the losses will not be calculated in to annual enterprise income for tax payment. If enterprises intend to have the opportunity to make up for its losses in this way, tax audit report may be required by tax authorities.
2. For a proper enterprise income tax declaration
To accomplish tax audits, certificate tax agents will adjust enterprises’ improper accounting treatments, which enable enterprises to file a proper cooperate income tax declaration.
3. To pass on risk of involuntary tax evasion.
If enterprise with tax audit reports by tax agencies are inspected by tax authorities and are asked for tax makeup, penalty, as well as overdue payment, the enterprises are only responsible for the tax makeup, while the tax agent for the penalty, as well as overdue payment. Also, the enterprise can pay all the fees and then claims for compensation from involving tax agencies. But, it shall be confirmed that the involuntary tax evasion is caused by involving tax agents.
4. To reduce the risk of inspection from tax bureau.
Inspection on matters of tax includes Professional Tax Inspection and Desk Tax Inspection of Management Department.
After finishing the tax audit, reports, tax agencies will upload them to the inside network system of tax bureau, which will be downloaded by officers.
Generally, enterprises with tax audit reports made by tax agencies are less likely to be inspected by tax bureau.
5. To reduce enterprises’ taxable amounts with the help of qualified certificate public accountants or certificate agents.
For tax audit, certificate public accountants and certificate agents will audit enterprises’ total accounting, after which they may communicate with the companies and adjust accounting entries, by which cooperates’ taxable amounts can be reduced. For improper accounting treatments, they will give proposals about adjustments, and also provide with excellent suggestions on tax reducing.
A Tax Audit Report is Necessary in the following circumstance…
- An enterprise suffers a huge loss in a year, and intends to make up the loss in the way that has been mentioned in the part “Benefits of tax audit”, item one.
- Something may be wrong with a enterprise’s accounting, which worries the enterprise.
- Nothing wrong with an enterprise’s accounting, but add-value tax amount of the enterprise is rather small, which may draw the inspection of tax authorities.
- A enterprise suffers losses for continuous three years, and then is asked by tax bureau to submit tax audit reports of the three years; An enterprise is asked for response by tax bureau for various reason and is required to submit tax audit reports.
- The profit of an enterprise is too small to match the enterprise’s income and asset; or the enterprise has conducted tax evasion for several times and is afraid of being inspected by tax bureau.
- An enterprise making profit in a year and wants to make up the loss in the way mentioned in the part “Benefits of tax audit”, item one. But tax audit report of the year making profit and the year suffering the loss, as well as the years between them shall be given.
A Tax Audit Report is not Necessary in the following circumstance…
- when annual loss of an enterprise is rather small and it is not worthwhile making a tax audit report; or the loss is large, but the enterprise doesn’t intend to make up for it in the way mentioned in the part “Benefits of tax audit”, item one, out of some reasons.
- The enterprise makes profit and doesn’t need to make up for any loss in the way mentioned in the part “Benefits of tax audit”, item one; the enterprise is confident with it matters of accounting; the enterprise can conduct enterprise income tax declaration itself.
- The enterprise has and will have no record of tax evasion; nothing wrong with the enterprise’s accounting; the enterprise will not be inspected by tax bureau for some special reasons; or even the enterprise is inspected by tax bureau, is able to deal with the situation.