On July 14, 2023, the General Department of Taxation issued Decision 970/QĐ-TCT ("Decision 970") regarding the process of inspecting substitute taxes in place of Decision 746/QĐ-TCT ("Decision 746"). Below, ATA Legal Services will summarize and analyze some noteworthy points in Decision 970:
1. Addition of the basis for tax inspection at the taxpayer's headquarters
Decision 970 introduces an additional basis for tax authorities to conduct inspections at the taxpayer's headquarters 'upon the proposal of the State Audit, State Inspection, and other competent authorities.'
2. Priority application of information technology in tax file inspections at the tax authority's headquarters
Accordingly, tax files that have already utilized information technology for inspection support, either partially or entirely, will be subject to the comprehensive or partial application of the tax sector's information technology to verify the appropriateness, completeness, and accuracy of the information and documents within the tax files. This aims to ensure the taxpayer's compliance with tax laws and detect any risks or irregularities present in the tax files.
3. Changes in criteria for selecting taxpayers to plan tax file inspections at the tax authority's headquarters
The selection of taxpayers will continue to be based on risk analysis results through the application of planning support and actual tax management. However, Decision 970 adds another selection criterion: not only prioritizing high-risk entities but also considering taxpayers who have not been subject to inspection or tax audits for more than 5 years.
Moreover, under Decision 746, the ratio of selected taxpayers for inspection is 80-85% based on the Taxpayer Risk Profiling (TPR) application and 15-20% based on local practices. In contrast, Decision 970 allows the General Department of Taxation to determine a suitable selection ratio based on practical tax management requirements.
4. Addition of provisions for on-site tax inspection of taxpayers falling under high-risk monitoring cases
As stipulated in Article 22 of Circular 31/2021/TT-BTC on risk management in tax administration, taxpayers falling under high-risk monitoring cases are those who exhibit one of the following signs:
a. Taxpayers conducting suspicious transactions through banks, as defined by the laws on anti-money laundering related to tax evasion and tax fraud.
b. Taxpayers or legally authorized representatives of taxpayers who are prosecuted for violations related to taxes, invoices, or documents.
c. Taxpayers with high tax risk according to priority topics or identified through tax management information that requires tax monitoring.
d. Taxpayers selected from the list of non-compliant taxpayers, high-risk taxpayers, and taxpayers who fail to provide or provide incomplete explanations or additional information as requested and within the deadline specified in the tax authority's written notice.
In Decision 970, the General Department of Taxation requires tax authorities to gather information, documents, and data of taxpayers from the tax sector's information system, such as registration records, declarations, tax payments, invoice usage reports, financial statements, and information collected from third parties. This information will be combined with direct tax management activities at the local level to conduct an in-depth analysis of taxpayers listed under high-risk monitoring cases.
On a regular monthly basis, tax authorities at all levels must report the results of processing taxpayers falling under high-risk monitoring cases, which have been inspected, to the General Department of Taxation by entering the outcomes into the inspection support system.
Taxpayers falling under high-risk monitoring cases, who have undergone tax inspection for the monitored topics and completed the tax file processing as required, will be removed from the list of high-risk monitoring cases.
5. Allowing online explanations
According to the provisions of Decision 970, the process of providing explanations, additional information, and documents can be conducted directly at the tax authority's headquarters or through online communication, electronic transactions, or sending explanatory documents via postal services. This will create favorable conditions for taxpayers subject to inspection, while also helping tax authorities limit cases where taxpayers deliberately fail to cooperate or intentionally delay the explanation period.
6. Limiting the number of requests for explanations and additional information
Decision 746 only specifies that tax authorities can request explanations and additional information when the previous explanations or additions were insufficient to substantiate the accuracy of the declared tax content or when there are certain aspects that need further clarification. Additionally, this request should be made within the previously notified deadline, and if the taxpayer fails to comply with the request. In practice, some tax files have been repeatedly requested to provide explanations and additional information, causing significant difficulties and inconvenience for the inspected entities.
Therefore, in Decision 970, the General Department of Taxation stipulates that "Tax authorities may request taxpayers to provide explanations and additional information no more than 02 (two) times."
In cases where the taxpayer fails to provide explanations or additional information after both notifications, the tax authority will verify the taxpayer's registered business location. If the business is still operational, the tax will be determined if there is sufficient basis; if there is not enough basis, the taxpayer will be included in the list for further planning of inspection or audit activities based on risk management principles.
7. Clarification of unplanned on-site tax inspections
According to Decision 970, the tax authority is authorized to conduct unplanned on-site inspections at the taxpayer's headquarters in the following cases without the need for prior planning:
- Inspecting taxpayers based on denunciations;
- Inspecting taxpayers based on directives from the Head of the tax authority or directives from the superior tax authority's Head;
- Inspecting at the taxpayer's request (due to division, separation, merger, consolidation, conversion of business types, dissolution, termination of operations, equitization, termination of tax identification numbers, or relocation of business premises resulting in changes to the tax administration authority);
- Pre-refund inspections;
- Inspecting based on proposals after inspections at the tax authority's headquarters;
- Other cases of unplanned on-site inspections.
8. Taxpayers who do not receive the Inspection Decision or refuse to sign the Announcement Minutes of the Inspection Decision will have a violation report prepared, and they will be subject to penalties
According to Decision 746, when announcing the tax inspection decision, both the tax authority and the taxpayer must sign the Minutes confirming the time and content of the decision. In cases where the taxpayer fails to comply with the tax inspection decision or refuses to provide the required documents, they will be subject to administrative penalties as stipulated. In the event that the violating party or their authorized representative is absent or deliberately evades signing the violation report, or there are objective reasons preventing them from signing, the report must have the signature of the representative of the local authority at the commune or ward where the violation occurred, or at least one witness's confirmation. If there is no confirmation from the authority or witness, the reasons must be clearly stated in the violation report.
On the other hand, Decision 970 creates mechanisms to facilitate tax inspections. Specifically, in cases where the taxpayer is still conducting normal business operations and fulfilling tax obligations, but they do not receive the tax inspection decision, does not sign the Announcement Minutes of the Inspection Decision, or deliberately avoids complying with the decision, the inspection team will create a violation report and submit it to the competent authority to issue the tax inspection decision for administrative penalties. This also includes the application of tax management measures (if applicable) and following the tax determination procedures as regulated.
The violation report will be prepared and, if the violator or the representative of the violating unit is not present or intentionally evades signing, or for objective reasons cannot sign, the report must have the signature of the representative of the commune or ward-level local authority where the violation occurred or at least one witness's confirmation. If there is no confirmation from the local authority or witness, the reasons for this will be clearly stated in the violation report.
In light of this, taxpayers need to be mindful to avoid facing additional legal and financial responsibilities resulting from non-compliance or delayed compliance with tax inspection decisions issued by the tax authorities.
The above are some notable points in the tax inspection process under Decision 970 issued by the General Department of Taxation. It is evident that the new process is much more rigorous and emphasizes adherence to the information technology application system to ensure objectivity and accuracy.
Decision 970 takes effect from the date of issuance and replaces Decision 746, as well as Decision No. 1215/QD-TCT dated September 3, 2020. The tax authority shall seek opinions from relevant agencies and organizations before implementing tax violation measures according to Decision No. 2601/QD-TCT dated December 30, 2016.
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