Tax audit by the Tax Authorities? Piece of cake!

A tax audit is an investigation by the Tax and Customs Administration into the accuracy of previously filed tax returns (corporate income tax, VAT, payroll tax). It is not intended to penalize you — simply a check on the quality of the returns. In practice: an inspector visits (or requests documents digitally), checks the records, and issues a report with any necessary corrections. Good preparation without panic prevents surprises. Below: how the process works, your rights, and how Karim's accountant ensures the audit runs smoothly.

The short answer

• What: verification by the Tax and Customs Administration of the accuracy of previous tax returns.
• Announcement: usually in writing, with date, scope, and duration.
• Duration: 1-5 days on-site, followed by a report within 6-12 months.
• Scope: Corporate income tax, VAT, payroll tax, or a combination — sometimes a specific period or item.
• Result: report with any additional assessments, fines, or no corrections.

What is a book review?

The Tax and Customs Administration has the right to inspect the records of entrepreneurs (Art. 47 et seq. General Tax Act). A book audit is the practical implementation thereof. Objectives:

• Verify whether corporate income tax, VAT, and payroll tax returns correspond with the records.
• Checking whether records meet requirements (retention obligation, completeness).
• Detecting fraud or gross errors.
• Sometimes randomly, sometimes targeted based on signals.

How are you announced?

Usually in writing by letter, with:

• Date of visit (often 2-4 weeks in advance).
• Name of inspector.
• Subject: Corporate income tax, VAT, wages, or combination.
• Period being investigated (1-5 years ago).
• Which documents are requested.

Sometimes unannounced — especially in cases of suspected fraud or during specific industry investigations.

Preparation

A week before the visit:

1. Collect documentation: annual accounts, VAT returns, payroll records, bank statements, debtor lists.
2. Reconciliation check: administration – tax returns – annual accounts (the “three-step process”).
3. Bookkeeper present: have your accountant be present — provide statements to the inspector.
4. No surprises: review yourself first — non-deductible expenses, mixed expenses, intercompany prices.
5. Workplace: quiet room, coffee, internet for inspector.

What happens during?

The inspector:

• Requests documents — physical and digital.
• Ask questions about specific transactions — be factual, not defensive.
• Makes notes and copies — you must provide everything he requests (retention obligation).
• Performs sample checks on invoices, cash statements, and expense claims.
• Sometimes visits company location or asks for a tour.

Be cooperative — resistance makes it longer and more difficult. But give no more than asked; voluntarily providing extra information is suspect.

Rights and obligations

Obligations of the entrepreneur

• Cooperation (Art. 47 Awr).
• Access to records (books, invoices, contracts).
• Access to business premises.
• Answering questions regarding administration and business operations.

Entrepreneur rights

• Have an advisor or accountant present.
• Do not make a statement that could incriminate yourself (nemo tenetur).
• Request proof for accusations.
• Report from inspector received for response.
• Object to additional assessment/fine.

The report, and then what?

After the examination (1-6 months later), you will receive a report:

• No corrections: administration in order — done.
• Corrections: additional assessment of corporate income tax, VAT, or payroll tax, plus tax interest (4% in 2024) and any penalty.
• Fine: default penalty for errors, criminal penalty (25-100%) for intent.

Disagree with the report? First, meet with the inspector. Then file an official objection (within 6 weeks). After that, possibly an appeal to the court. Read about filing an objection.

Prevention is better

To get through book audits without surprises:

• Clean records: maintain them monthly, not just for the tax return.
• Retention obligation: retain all documentation for 7 years (10 years for real estate).
• Cautious declarations: not too creative — only claim what is defensible.
• Intercompany rates: business-like and documented.
• Regular check: annual review by accountant.

Honest recommendation

A tax audit is no cause for panic, provided the records are in order. Engage your accountant as a guide—they are familiar with the tax returns and speak the inspector's language. Be cooperative, not defensive, and provide exactly what is requested. If complications are suspected (large intercompany transactions, unclear mixed costs): have a tax specialist with audit experience review the records. Better proactively than reactively.

For other topics: lodging an objection against the Tax and Customs Administration, corporate income tax return and VAT return.

Frequently Asked Questions