Introduction:
For Nigerian companies, tax audits are an integral part of ensuring compliance with tax laws and regulations. The Federal Inland Revenue Service (FIRS) is responsible for conducting tax audits to verify the accuracy and completeness of tax returns filed by businesses. Understanding the different types of tax audits conducted by FIRS is crucial for companies to be prepared and cooperate effectively with tax authorities. In this article, we will explore the various types of tax audits carried out by FIRS and shed light on the audit procedures involved.
- Desk Audit:
A desk audit is a relatively straightforward and less intrusive form of tax audit. During a desk audit, tax officials review the taxpayer’s financial records and tax returns at the FIRS office. This type of audit is typically conducted for smaller businesses or those with relatively simple tax affairs. The FIRS may request specific documents or seek clarifications on certain transactions during the review process.
Procedure:
- The company receives a notice of a desk audit from the FIRS, stating the time and location for the review.
- The company compiles and submits the requested financial records and documents to the FIRS.
- Tax officials analyze the provided information, comparing it with the tax returns filed by the company.
- If any discrepancies or issues are identified, the company may be required to provide additional explanations or evidence to resolve the matter.
- Field Audit:
A field audit is a more comprehensive and in-depth examination of a company’s financial records and operations. Tax officials conduct a field audit by visiting the company’s premises to conduct on-site inspections and interviews with key personnel. Field audits are usually conducted for larger businesses or those with complex financial structures.
Procedure:
- The company receives a notice of a field audit, specifying the date and time of the visit.
- The tax officials visit the company’s premises to conduct the audit, inspecting financial records, assets, and conducting interviews with relevant personnel.
- The company’s accounting systems and internal controls may also be assessed during the field audit.
- If discrepancies or non-compliance issues are detected, the company may be required to provide additional documentation or explanations to resolve the matter.
- VAT Compliance Review:
Value Added Tax (VAT) compliance reviews focus specifically on a company’s adherence to VAT regulations. VAT is a consumption tax levied on the value added at each stage of production or distribution of goods and services. Businesses are required to charge, collect, and remit VAT to the FIRS. VAT compliance reviews aim to ensure that companies are correctly calculating, reporting, and remitting VAT amounts.
Procedure:
- The FIRS may conduct a VAT compliance review either through desk-based analysis or on-site inspections.
- The company’s VAT records, invoices, and relevant documentation are assessed to verify the accuracy of reported VAT amounts.
- If discrepancies are found, the company may be asked to provide additional supporting documents or explanations.
- Transfer Pricing Audit:
Transfer pricing audits focus on related-party transactions within multinational companies or companies with related entities. The goal is to ensure that transfer pricing arrangements are conducted at arm’s length and comply with the relevant transfer pricing regulations.
Procedure:
- The FIRS scrutinizes the company’s related-party transactions to assess whether they comply with transfer pricing rules.
- The company may need to provide detailed documentation, including transfer pricing studies, to justify the pricing of intercompany transactions.
Conclusion:
As tax compliance is a critical aspect of running a business in Nigeria, understanding the different types of tax audits conducted by FIRS is essential. By being aware of the various audit procedures involved in each type of tax audit, Nigerian companies can better prepare themselves for potential audits and ensure their tax affairs are in order. Timely submission of accurate financial records and proactive cooperation with tax authorities will not only facilitate a smooth audit process but also demonstrate the company’s commitment to transparency and compliance. Remember, tax audits are a standard process to ensure a fair and equitable tax system and foster a conducive business environment in Nigeria.
For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.
