What To Prepare For A Tax Audit?

Key takeaways

• Tax inspections focus on assessing the integrity of tax filings and compliance with tax laws, with the goal of handling any violations according to regulations.
• Systematically preparing documents, especially payroll data and original vouchers, is the decisive factor for ensuring a smooth process with the inspection team.
• Businesses have the right to request an inspection postponement for valid reasons and to appeal the inspection’s conclusions if they disagree.
• Understanding the process and a business’s rights during an inspection helps protect its legal interests and limit legal risks.
• Related-party transactions are a high-risk area requiring exceptionally thorough preparation with complete transfer pricing documentation.

A tax inspection is an activity carried out by tax authorities to assess a company’s compliance with tax law, verify signs of violations, and gather evidence. It’s important to distinguish between a tax inspection and a tax audit. A tax audit is a regular professional activity to verify the accuracy of tax filings. In contrast, a tax inspection has a more stringent process, a more focused scope, and is typically conducted when there are clear signs of legal violations.

Cases that trigger a corporate tax inspection

According to Article 113 of the 2019 Law on Tax Administration, a business will be subject to a tax inspection in four specific cases:

• When there are signs of tax law violations: This occurs when the tax authority detects anomalies in accounting records or tax declarations, or receives information about tax evasion or fraud.
• To resolve complaints, denunciations, or as part of anti-corruption efforts: This happens when there is a complaint or denunciation related to the company’s tax activities or a need to implement anti-corruption measures.
• Based on risk-based tax management, the business is classified in a high-risk category based on the tax authority’s data analysis system.
• At the recommendation of a competent authority: When the State Audit Office, the Government Inspectorate, or other competent authorities recommend a tax inspection.

What businesses need to do to prepare for a tax inspection or audit

Preparing in advance to work with the tax authority is the key to protecting your company’s interests. This process requires a high degree of systematization and professionalism to ensure transparency and minimize legal risks.

1. Upon receiving the inspection decision

The period from receiving the inspection decision until it is officially announced is the most critical time for a business to review and rectify any errors. Effectively using this period can save the company significant costs and reduce legal risks.

According to Clause 3, Article 114 of the Law on Tax Administration, the inspection decision must be sent to the business no later than three working days from the date it is signed. Your company should check the signing date and the date of receipt to ensure the notification process is valid, protecting your right to adequate preparation time. If you receive the decision after this deadline, you have the right to submit feedback to the tax authority requesting an explanation or resolution.

According to Clause 4, Article 114 of the Law on Tax Administration, the decision must be announced within 15 days from the date it is issued. This is a critical legal timeline that affects many of the company’s rights. Before the announcement date, your business should make the most of this time to perform two important actions:

• File supplementary tax declarations: According to Article 47 of the Law on Tax Administration, a business still has the right to file supplementary declarations to correct errors after receiving but before the announcement of the decision. This is the last chance to self-adjust to reduce tax payable or increase deductible tax without it being considered a violation discovered through inspection. After the decision is announced, this right is no longer valid for adjustments that benefit the business.
• Request a postponement (if necessary): According to Clause 2 and Clause 3, Article 110 of the Law on Tax Administration, if there are valid reasons—such as the absence of key personnel, a force majeure event, or insufficient time to prepare documents—the business can submit a written request to postpone the inspection. This request must be sent before the decision is announced, and the tax authority will respond within five working days.

2. Documents to prepare for the inspection or audit

Preparing your documentation requires a systematic and meticulous approach. A business needs to have six main groups of documents ready, covering legal, accounting, tax, HR/payroll, contracts, and cash flow management.

1. Corporate legal documents

• Business registration licenses and all amendments
• Company charter with amendments, financial regulations, salary and bonus policies
• Bank account registrations, list of shareholders/capital contributors
• Registration of accounting methods, depreciation methods, and all appointment/transfer decisions

2. Tax declarations and financial statements

• VAT, CIT, and PIT declarations (monthly/quarterly/annual)
• Reports on invoice usage, records of tax payments to the state budget
• Annual financial statements with appendices, finalization reports for all tax types
• Files summarizing input/output VAT ledgers and cost norm registrations

3. Payroll, HR, and PIT records (Special focus)

• Employee roster, labor contracts, internal decisions on salary, bonuses, and allowances
• Detailed monthly payrolls, timesheets, and proof of salary payments via bank transfer or cash
• Tax deduction vouchers, PIT finalization declarations, dependent registration files, and letters of authorization for finalization

4. Accounting books and vouchers

• General ledgers, subsidiary ledgers for all accounts, payment/receipt slips, warehouse import/export slips, and systematically organized input/output invoices
• Bank statements, payment documents, cash/inventory count records, and fixed asset depreciation files

5. Economic contracts & partner transaction records

• Sales and service contracts with appendices, acceptance and handover minutes, and debt reconciliation records
• Invoice issuance notices and invoice printing contracts (if any)

6. Bank statements, cash flow, and specific records

• Statements for all bank accounts, cash ledgers, and payment/receipt slips
• Loan files, interest payment vouchers, fixed asset files, depreciation schedules, and import/export documents (if any)

7. Additional notes by industry:

• Import/export businesses need foreign trade contracts, Certificates of Origin (CO), Certificates of Quality (CQ), customs declarations, and proof of import/export tax payments.
• Construction/manufacturing businesses need budget estimates, project acceptance minutes, cost accounting records, depreciation schedules, and project finalization files.
• If using e-invoices: Valid electronic versions must be prepared.

These document groups help a business proactively reconcile and explain its figures, ensuring transparency and completeness when working with the tax inspection and audit team.

The process of working with the inspection team

Providing documents must be done fully and promptly as requested by the inspection team. However, the business has the right to refuse to provide information that is not relevant to the scope of the inspection, which helps protect unnecessarily sensitive information.

Explaining the figures requires deep professional knowledge. The business should appoint a knowledgeable person, typically the chief accountant, to directly explain the issues raised by the inspection team. Common issues include discrepancies in account balances, revenue without a corresponding cost of goods sold, or long-outstanding debts.

Signing the inspection minutes is the final critical step. At the conclusion, the team will draft the minutes. The business must read the draft carefully and ensure all its explanations and viewpoints are fully recorded in the minutes before signing.

Implementing the conclusions and the right to appeal must be clearly understood. The business must comply with the decisions in the inspection conclusion. However, if there is disagreement, the business has the right to file a complaint according to the legal procedures within the specified timeframe.

Key considerations for businesses with related-party transactions

Businesses with related-party transactions need to pay special attention to declaration, pricing, and documentation to prevent risks related to transfer pricing, budget loss, and being subject to tax re-assessment and penalties during an inspection.

Declaring related-party transactions and establishing the relationship. Businesses must fully declare information about related parties and their transactions in Appendices I, II, and III of Decree 132/2020/NĐ-CP, submitted with the annual CIT finalization. Correctly identifying related-party relationships (e.g., >25% common ownership, control, financial guarantees) is key to avoiding errors.

Preparing and storing transfer pricing documentation, Businesses must prepare a Local file, and if applicable, a Master file and Country-by-Country Report. The benchmarking data used must be truthful and realistic, and the pricing method must be appropriate. Using distorted or unverified data must be strictly avoided.

Expenses disallowed as reasonable costs. Common errors found during tax audits often include payments to related parties that do not serve production/business activities, contribute to revenue, or have real economic substance. These will be disallowed as deductible expenses. Costs incurred with related parties residing in low-tax or tax-haven jurisdictions are especially likely to be disallowed if their value or the actual service provided cannot be proven.

Managing transfer pricing risks and points to avoid. Businesses with a high proportion of related-party transactions, a history of losses, or high revenue with low tax payments are likely to be targeted for inspection. It is crucial to review service transactions, royalties, and financial expenses with related parties, especially large-value items where the business benefit is not clear.

Reporting and explaining to the audit/inspection team Businesses should proactively prepare complete documentation and be ready to explain the source of their data and their choice of pricing method. If required to make adjustments or if costs are disallowed, reports must be updated and supplemented; providing false or inconsistent information must be strictly avoided.

A tax inspection is a test of a company’s management capabilities. Instead of waiting, CEOs should initiate a “self-inspection” right now. Start by instructing the HR and Finance departments to reconcile all payroll records, ensuring every payment has a solid legal basis and is fully declared. Proactive preparation is the best way to turn risk into an opportunity to affirm transparency and professionalism.