Tax Control And Appealing Its Results In Moldova

In this article, I will analyze the following topics related to the tax control and appealing its results in the Republic of Moldova:

I. Types and/or forms of tax control, the procedure for conducting

II. Procedure of appealing the results of tax control

I. Types and/or forms of tax control, the procedure for conducting

The need to know the types and/or forms of tax control is very important for legal entities. The party under verification needs to know its rights and obligations as a taxpayer in the event of a tax audit. Failure to comply with them can result either in the violation of rights or in the application of coercive measures by the control authorities (by applying fines, stopping operations on the company’s bank accounts, etc.). On the other hand, the taxpayer’s very good knowledge of his rights can help to avoid abuse by the authorities.

Art. 129 para. 11 of the Fiscal Code provides for the notion of tax control – verification of the correctness with which the taxpayer fulfills the fiscal obligation and other obligations provided for by fiscal legislation and other normative acts, including verification of other persons in terms of their connection with the taxpayer’s activity through methods, forms, and operations provided for of the Fiscal Code. The purpose of the tax control is to check how the taxpayer complies with the fiscal legislation in a certain period or several fiscal periods.

Tax control can be carried out by representatives of the fiscal authorities only on the basis of a written decision issued by the management of the fiscal authority.

The main rights and obligations of the taxpayer in the event of a tax control

The main rights of the taxpayer:

a. the right to a fair attitude on the part of the authorities with fiscal administration attributions and their representatives;

b. the right to represent its interests before the concerned authorities either personally or through a representative;

c. the right to appeal the decisions, actions or inactions of the tax administration authorities or their officials;

d. the right to fair fiscal treatment and the interpretation of doubts arising from the application of fiscal legislation in favor of the taxpayer, etc.

The main obligations of the taxpayer:

a. to keep accounting records according to the forms and manner established by the legislation;

b. to present truthful information about the income resulting from entrepreneurial activity, as well as about other objects of taxation;

c. to present at the first request of the authorities record documents, fiscal statements, other documents and information regarding the activity of the entrepreneur, taxes and fees calculated and paid, etc.;

d. to ensure the authorities free access to the company’s premises (e.g. production premises, warehouses, commercial premises, etc.);

e. to assist in the performance of the fiscal control, to sign the act regarding the result of the control, and to give explanations in writing or orally;

f. to comply with the decisions of the authorities with fiscal administration attributions on the results of the control carried out, etc.

Types of tax control

Tax control can be exercised in two forms:

1. Tax control at the office of the tax body (chamber tax control). Chamber tax control consists of verifying the correctness of the preparation of fiscal reports, or other documents presented by the taxpayer, which serve as the basis for the calculation and payment of taxes and fees, of other documents at the disposal of the fiscal body or other body with fiscal administration powers (hereinafter – ”control body”), as well as in the verification of other circumstances related to compliance with fiscal legislation. When it reveals errors and/or contradictions between the indications of the reports and the documents presented, the control body is obliged to communicate this to the taxpayer, asking him to modify the respective documents within the established term. The control body carries out the fiscal control without adopting a written decision on the targeted objective. If the detection of the fiscal violation is possible within the framework of the chamber tax control, and the on-site audit is not necessary, the control body can draw up the fiscal audit report.

2. On-site tax control. The purpose of the on-site tax control is to verify compliance with the fiscal legislation by the taxpayer or another person subject to control, which is carried out by the control body at their location. The on-site tax control related to a taxpayer may include one or more types of taxes and fees. On-site tax control can be carried out only based on a written decision of the management of the control body.

At what time can the company be subject to tax control?

Tax control is carried out during the hours of the body exercising tax control and/or those of the taxpayer. The duration of an on-site tax control must not exceed 2 calendar months. In exceptional cases, the management of the control body can decide to extend the duration of the control by no more than 3 calendar months or stop the control. The period of suspension of the control and presentation of documents is not included in the duration of the control, the latter being calculated from the day of its commencement until the day of signing the respective act, inclusive.

In the framework of tax control, the bodies empowered with the right to carry out tax control draw up a series of documents:

1. Subpoena is a written document in which the person is invited to the fiscal body to submit documents or to present another kind of information, relevant for the determination of the fiscal obligation. The tax authority has the right to subpoena any person to testify or produce documents. The subpoena indicates the purpose of the subpoena, the date, time, and place where the subpoenaed person must appear, his obligations and responsibilities.

2. Tax Control Act is a document drawn up by the fiscal officer or other responsible person of the body exercising the control, in which the results of the fiscal control are recorded. The act will objectively, clearly, and accurately describe the violation of fiscal legislation and/or the method of recording the objects of taxation, concerning the respective recording documents and other materials, indicating the violated normative acts. Each fiscal period will be reflected in the act, specifying the fiscal violations detected in it. The control act is drawn up regardless of the fact of finding fiscal violations. This act describes the findings of the control, the period subject to the control, the taxes and fees verified, as well as other information that was the basis of the control/finding of fiscal violations. The control act itself is not binding to exercise obligations/pay taxes but serves as a basis for issuing the decision on the results of the control. The taxpayer is obliged to sign the control document, including in case of disagreement with the results of the control. The control act is signed by the head of the company and/or another representative delegated in this regard.

3. Report is a document drawn up by the tax officials or another responsible person of the body that exercises the control, in which the fact of picking up the documents and/or the control machines is recorded. The report is signed by the person who drew it up (representative of the fiscal inspectorate) and by the person from whom the documents and/or control machines were collected or by the assisting witnesses. If the person from whom the documents and/or control machines are collected refuses to sign the report, the refusal will be recorded in it.

4. Decision is an act issued by the fiscal body or by the tax and local tax collection service related to the exercise of the powers of these bodies and is issued when fiscal control is initiated. The decision regarding the initiation of the fiscal control will contain the list of persons proposed for the control, taking into account the decreasing value of the difference between the estimated taxable income and the declared one and the ability to carry out several controls.

II. Procedure of appealing the results of tax control

2.1. Pre-trial settlement

What should be done in case of disagreement with the control results?

If you do not agree with the results of the tax audit, you have the right to appeal them by submitting a written disagreement to the authority that performed the tax audit, citing all the facts and evidence that justify your position. This disagreement is to be submitted within 15 calendar days, from the date of signing the Fiscal Control Act. The disagreement presented with the expiration of this term will not be taken into consideration when examining the case of fiscal violation and adopting the decision.

In what term will the tax violation case be examined?

The authority that carried out the fiscal control is obliged to examine the case of fiscal violation within 15 days from the date:

a. presenting the disagreement (if it was presented in time), or

b. the expiration of the deadline for presenting the disagreement (if it has not been presented).

This term can be extended by 30 days by the decision of the fiscal authority, including in the case of presenting the reasoned approach of the taxpayer. The disagreement submitted to the hierarchically superior control authority will not be examined, and in the end, it may generate the omission of the 15-day deadline for its submission to the authority that performed the control. In the case of submitting a reasoned disagreement with the annexation of supporting documents, the fiscal authority may order an additional verification of the information provided. When examining the case of fiscal violation, the results of both the initial and the additional control will be taken into account (through which, for example, based on the submitted disagreement, the circumstances that attest to the absence of fiscal violation can be ascertained).

In the case of controls carried out by the tax authority, the latter is obliged to notify the preventive taxpayer (by subpoena) about the place, date, and time of the examination of the tax violation case. The case of fiscal violation can be examined without the presence of the responsible persons of the taxpayer or his representative only in the situation where there is information regarding the notification to the taxpayer about the place, date, and time of the examination of the case and no requests have been received from him to postpone the examination the case.

Appealing the sanctioning decision

What should be done if a sanctioning decision has been issued?

If the tax authority has issued the decision to apply a tax penalty, without taking into account the arguments brought to the disagreement, you have the right to appeal this decision. The appeal is submitted to the fiscal authority that issued the decision, within 30 days from the date of its receipt. In case of missing the mentioned term, the appeal will not be examined. If the deadline for filing the appeal was missed for valid reasons, the fiscal authority can reinstate the sanctioned person and examine the appeal. In this case, the appeal must contain the statement of the reasons for skipping the deadline and the request to reinstate it within the deadline. Filing the appeal does not suspend the execution of the appealed decision. The taxpayer must expressly request the suspension of the execution of the decision based on relevant arguments.

Courts return summons requests regarding the annulment of the fiscal body’s decision, if the plaintiff did not comply with the prior procedure for resolving the dispute out of court (did not appeal the decision to the issuing authority).

The fiscal authority examines the appeal within 30 days. This term can be extended by no more than 30 days, a fact about which the taxpayer must be notified. When examining the appeal, the taxpayer is invited to give explanations, having the right to submit confirmatory documents. The case can be examined in the absence of the taxpayer if he was summoned in the established manner and, for unfounded reasons, did not appear or if he requested an examination of the appeal in his absence.

After examining the appeal, the tax authority can order:

a. rejecting the appeal and maintaining the appealed decision;

b. partial satisfaction of the appeal and modification of the contested decision;

c. satisfaction of the appeal and annulment of the contested decision;

d. suspending the execution of the appealed decision and performing repeated control.

During the examination of the appeal, the obligation to prove the incorrectness of the decision issued by the tax authority is placed on the person who is contesting.

2.2. Court settlement of tax dispute

What should be done if the appeal against the sanctioning decision is rejected or partially satisfied?

If the tax authority rejected or only partially satisfied the appeal, you have the right to appeal the respective decision either administratively (to the higher hierarchical body – the Main State Fiscal Inspectorate) or in court. The request to sue against the decision of the fiscal authority is submitted to the competent court within 30 days from the date of receipt of the decision to reject the appeal.

The summons request is not subject to a state fee

You have the right to request the collection from the fiscal body of the damage caused by the contested sanctioning decision. When examining in court the action regarding the annulment of the tax authority’s decision, the burden of proof of the legality of the decision rests with the tax authority. Simultaneously with the filing of the summons, you have the right to request the suspension of the execution of the contested decision.

How can the court decision by which the request to annul the decision of the fiscal body was rejected be appealed?

If you consider that the court’s decision is illegal or unfounded, you can appeal it to the Court of Appeal. The appeal request is submitted to the court that adopted the decision. The appeal period is 30 days from the pronouncement of the decision. The appeal exercised within the deadline is suspensive of the execution of the decision. The decisions of the Courts of Appeal become final from the moment they are pronounced and are subject to enforcement. If you consider that the decision of the Court of Appeal is illegal, you have the right to appeal it to the Supreme Court of Justice. The appeal is submitted within 2 months from the date of communication of the full decision. The declaration of appeal against the decisions of the Court of Appeal does not suspend the execution of the decision.

To sum up, the subject of tax controls proved to be a complex one, both from the perspective of fiscal authorities concerned with combating tax evasion and from the perspective of taxpayers interested in ensuring fair treatment and non-admission of abuses by inspectors. The experience of GITLAN & ASSOCIATES has demonstrated over time that the involvement of a mixed team of qualified tax and legal consultants, especially from the initial phase of tax control, can contribute decisively to ensuring a fair tax treatment and preventing violations of the taxpayer’s rights.