VAT audit – what is reviewed and how to be prepared

Tax audits focused on VAT are still very topical in Slovakia. Based on the data of the Slovak Financial directorate, 2/3 of tax audits performed in 2017 were focused on VAT.
 
During tax audits, the most commonly reviewed subject is the eligibility for excessive deduction of input VAT. Tax audit can also be opened, when a specialized department of the Financial directorate identifies discrepancies in transactions reported in filed VAT transactions statements. 
 
So what is the best preparation for a VAT audit?
 
First of all, we recommend presenting the auditor with correct, easily readable and understandable documentation. This relates mainly to VAT records, which should be clearly comprehensible and the tax auditor should be able to navigate through them without difficulty. Particularly with respect to records exported from an accounting software, to get the desired results, it is necessary to set-up the software in advance.
 
In relation to invoices, tax auditors generally require originals; however, it is usually possible to agree on presenting their copies. In case of invoices in other language than Slovak, a translation of (at least) the description of the taxable supply is likely to be required. The text (description of taxable supply) on invoices should be straightforward. By invoices containing e.g. only codes of products, prepare their explanations as well as supporting documents.
 
Make sure that persons present on meetings / communicating with the tax authorities are well informed about the subject of the tax audit. They should be able to clearly explain the business model of the company, so that the tax auditors can understand, how individual transactions relate to the business model.
 
Keep in mind that in relation to the ongoing tax audit, the tax authority can open a cross audit by the customers / suppliers of the company. In such case, it is very important that the explanations provided by both sides are consistent. Therefore, we recommend communicating with the suppliers, if you have any questions or there are necessary corrections of invoices, these should be cleared already during the preparation of tax return for the respective period. Do not forget to evaluate, whether you need to sign a new contract that would cover your cooperation.
 
Further, we would recommend regularly identifying material invoices, from which the company deducted input VAT, and preparing supporting argumentation / documentation, contracts, orders, delivery slips for goods.
 
Finally yet importantly, we would like to point out that also based on the latest decisions of the Czech and Slovak courts, emphasis is put on proving that the delivery was actually received and that it was done by the person stated on the invoice. Therefore, it is crucial to have at your disposal an undisputable proof that the delivery was realized. This relates to both goods and services.