Illicit practices regarding tax payments

SMEs might unintentionally report false tax statements or be victims of illicit behaviour of tax advisors and inspectors.

Risk type: Practice

Risk driver: Internal; External

DESCRIPTION

On the one hand, SME staff or management might not be knowledgeable enough and unintentionally falsify tax declarations. On the other hand, tax advisors and inspectors might take advantage of the complexity of the tax system to confuse the SME, engage in illicit practices without knowledge of the SME or extort bribes from the SME to overlook false tax declarations.

RED FLAGS

Red flags for lack of tax-related knowledge:

• Taxation software is not up to date.
• Financial staff are not trained on tax issues.
• Taxable income is not in line with the project volume or reporting.

Red flags for illicit practices of tax preparers and inspectors:

• The tax advisor convinces the SME to claim unreasonably high deductions.
• The tax advisor reports income that does not line up with SME reporting.
• The tax advisor invoices for high amounts for meetings with and entertainment of inspectors.
• It is always the same revenue authority’s officials engaged with the same financial staff of the SME.
• Financial staff are not trained on tax issues.
• There is a high number of claims by the revenue authority during tax audits .

KEY GUIDING DOCUMENTS

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FULL REFERENCES

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