background image
14.4. Tax Audits

After a taxpayer files their annual return, the tax authorities may begin an investigation if certain items of the return are questionable, or conduct an audit in more serious cases of suspected tax avoidance

A key determinant of whether or not an investigation or audit will be conducted by the tax authorities is if the profits of an enterprise deviate from the standard profit rates of similar industries. If the profit rate is higher than standard, the tax authorities will likely approve the self-assessment, if lower, an investigation or audit will likely be conducted and additional tax assessed.

Additional criteria for selecting investigation or audit targets include:

  • The taxpayer was audited in previous years
  • The outcome of previous years audits
  • Total income or expenses exceeding thresholds set by the authorities
  • The CPA who certified the taxpayers financial statements
  • Taxpayers engaged in transfer pricing (specific triggers covered in Sec 13.4.4.)

Investigation

An investigation is essentially a desk audit conducted by an assessing officer who examines all aspects of a case to see whether the self-assessed income tax is correct. The assessing officer will typically request additional documentation or explanation of questionable items of the return in order to make a final assessment. The taxpayer must provide the requested documentation to the tax authority within 30 days. An extension of an additional 30 days may be applied for.

If an enterprise fails to provide requested documentation within the specified timeframe, fines may be imposed. In addition, the tax authority will make assessment on whatever documentation has been made available, and may compute the adjusted assessment based on the standard profit rates of similar industries.

In most cases the final assessment can be made based on negotiation between the enterprise being investigated and the Taiwan tax authorities.

Audit

An audit is conducted by a team of 3 to 4 senior assessment officers when more serious tax avoidance or fraud issues are suspected. The audit is much more in depth than an investigation and may last for 1 to 2 years before a final assessment is made. Taxpayers are subject to the same to documentation and explanation requirements of an investigation, but an audit will also include onsite visits, interviews, etc., and in extreme cases, assessment officers can obtain search warrants and seize relevant documentation and evidence. Assessment targets are set higher in an audit and room for negotiation is limited.

Final Assessment

After final assessment is made, a notice will be issued to the taxpayer indicating the balance of tax payable. Full payment of any additional assessed tax must be paid within 10 days of receiving the notice.

If a taxpayer receives a notice of demand for tax payment they can choose to pay the tax or conduct objection and appeal procedures covered below.

Statute of Limitations

The statute of limitation for re-assessment of a tax return is 5 years if the taxpayer has filed an income tax return within the prescribed timeframe, and has not engaged in any tax evasive activities. If tax evasion or other fraud is suspected, the statute of limitation is 7 years.