With the increasing complexity of audits, OECD BEPS incentivized unilateral legislation, General Anti-Avoidance Rules (GAAR), and cases proceeding to arbitration, appeals and Mutual Agreement Procedure (MAP), a comprehensive tax audit diary will prove to be of valuable reference during the audit, from commencement to final determination and thereafter.
Ideally, this diary could be signed/initialed contemporaneously by the company and tax authorities signifying agreement of the summary.
A tax audit diary may include the following components:
- Summary of discussions at each audit meeting, including attendees, conclusions, future actions and promised timelines.
- Paper/electronic copies of all written audit inquiries received, including a date stamp upon receipt.
- Paper/electronic copies of all written audit inquiries provided, including the date provided to tax authorities.
- Copies of all reports, including transfer pricing studies, provided.
- Agreement as to what documents are not to be provided, with mutual consent of the company and tax authorities.
- Documentation of BEPS related discussions / assessments not yet legislated into domestic law.
- Summary of discussions re: jeopardy assessments / threats of additional assessments re: Competent Authority filings.
- References to adequate / inadequate transfer pricing documentation, as a finding of “inadequate documentation” may provide a basis for additional interest, penalties and possible disallowance of treaty benefits, such as MAP.
The diary should be included in corporate governance documentation that will provide consistency upon changes in personnel during the course of an audit, including relevant appeals.
Additionally, this diary will be instrumental in providing information to Competent Authority personnel and advisors for clarity of the audit negotiations and discussions, as well as serving as one source of valuable reference for the audit, including similar audits of other legal entities in that jurisdiction, joint audits, etc.
A discussion of a joint audit discussion as a component of the Tax Risk Framework is included in an earlier post dated 25 October 2014 for related reference.