A tax inspection conducted a desk audit of a company’s amended profit tax declaration. Following this review, the organization was assessed additional profit tax, along with penalties and a fine. The inspection concluded that the company had unjustifiably inflated both its expenses reducing sales revenue and its non-operating expenses.
A discrepancy was found between the company’s initial profit tax declaration and its accounting records, which matched. However, the figures declared in the amended tax return did not align with these records.
The organization was asked to provide explanations for the increased expenses in the amended declaration, which led to a reduction in its taxable base, and to support these costs with primary documents. The taxpayer, however, submitted only a portion of the requested documentation. Specifically, it failed to provide tax accounting registers for direct expenses, detailing cost items, and did not supply accounting statements for adjustments related to direct, indirect, and non-operating expenses.
Disagreeing with the tax authority’s decision, the company filed a lawsuit seeking to invalidate it. However, the courts ruled against the plaintiff, citing several key reasons:
- The taxpayer failed to substantiate the changes in the declaration with primary accounting documents and corresponding reversal entries in tax accounting registers.
- The submitted trial balances and account analyses lacked sufficient detail regarding counterparties. Furthermore, the analysis of postings did not provide comprehensive information on all transactions’ correspondence or the opening and closing balances for each counterparty individually.
- The documents presented were deemed inadequate to justify the declared expenses.
- The information on indirect expenses reported in the amended tax declaration did not correspond with the company’s general accounting data.
- Waybills provided lacked details about vehicle routes, making it impossible to confirm the vehicle’s use in the taxpayer’s production activities.
- Other non-operating expenses claimed by the company were not documented and were considered unsubstantiated.