The framework and limits of a tax audit in Romania are determined by establishing its object or purpose. Since an unplanned inspection is an exceptional situation, it is not conducted based on an inspection notice but is carried out under a service order without prior notice to the taxpayer. However, its object must still be recorded in the Unique Control Register (UCR) kept by each taxpayer.
Recording the inspection object in the UCR
The service order does not need to be communicated but must be handed over to the taxpayer. Therefore, documenting the object of the inspection as recorded in the UCR is of particular importance. Consequently, the taxpayer has an interest in immediately documenting the limits of the inspection by certifying the section where the mentions related to that inspection are recorded in the UCR. Such certification invalidates any subsequent mentions added to the UCR that could extend the purpose of the inspection and more.
It is important to note that the manner of completing the UCR is particularly significant in the case of an unplanned inspection in the absence of a prior notice and makes the difference between a legitimate inspection and one conducted in violation of the law. For further information on recent developments in this area, see “‘Unlucky’ Romanian taxpayers facing audits: chronicle of an abuse of rights foretold”.
Given the large number of taxpayers checked through the unplanned inspection procedure, there has been a record number of delegations of authority to tax administrations located hundreds of kilometres away and unfamiliar with the complexity of the activities carried out by large taxpayers.
All of which raises two important questions:
What are the particularities of this coordinated action of surprise inspections; and
What difficulties can be strategically addressed by taxpayers?
Communication and coordination challenges
First of all, considering that there are multiple situations where the service order has been communicated via email or announced by phone, it should be noted that any communication through electronic means is valid only if the taxpayer makes a written request in this regard.
There have been situations where the UCR was requested to be sent by mail to the headquarters of the National Agency for Fiscal Administration, the inspection team presented themselves at the taxpayer’s premises even after travelling hundreds of kilometres, and requests for completing the UCR were made by phone based on the instructions of the inspection team.
Unfortunately, the rule of conducting inspections at the taxpayer’s premises was changed two years ago, now representing the exception. However, the taxpayer can request that the inspection be conducted at its premises, and if it does not receive a response within three days, it is considered that the request has been accepted, with all requests to be made only at its premises, the benefits being evident for the taxpayer. Otherwise, the taxpayer is obliged to appear at the control authority’s premises whenever requested.
An unplanned inspection is not a full-scope inspection. It must be completed quickly, within 30 days. Consequently, its object must focus on verifying a specific risk, either identified in the general inspection activity or encountered within a particular industry. The consistency between tax declarations and accounting records, including the standard audit file, may be verified. A substantive analysis of the transfer pricing file may not be the subject of a surprise inspection, although specific aspects related to its preparation may be.
Very importantly, correcting the identified tax risk during the unplanned inspection can no longer lead to a full-scope tax inspection being conducted. Therefore, it is crucial that the risks identified during the unplanned inspection are completely and clearly outlined.
Limits and impact of unplanned inspections
An unplanned inspection does not block the taxpayer’s ability to submit rectifying tax returns, nor does it prevent it from contesting its own rectifying returns later if it believes that the correction was made solely to avoid a full-scope inspection, but it also has solid arguments to support a different tax treatment than that determined by the unplanned inspection.
However, there is a limit to rectifying returns – the initiation of a full-scope tax inspection (restricting by law such rectifications), which, in the absence of prior notice, may begin at any time after the completion of the surprise inspection.
Considering the 253 days of suspension of the statute of limitations during the pandemic, the statute of limitations for 2019 will expire at the end of 2025. However, there are situations where the fiscal year does not correspond to the calendar year, in which case 2019 may be prescribed. Additionally, one shall analyse on a case-by-case basis whether the statute of limitations was suspended and whether the unplanned inspection was conducted pro causa solely aiming to suspend the statute of limitations for 2019.
