How to Prepare for a RS Audit in Georgia

Revenue service audits play a crucial role in ensuring compliance with tax laws and regulations, promoting transparency, and safeguarding public revenue. In Georgia, the Revenue Service conducts these audits to verify the accuracy of tax declarations and ensure that both businesses and individuals fulfil their tax obligations.

To avoid fines and penalties during an audit, it is important for businesses to understand the process and take proactive steps such as maintaining accurate records, staying informed about current tax laws, and seeking professional advice when necessary.

Audit Process

The audit process conducted by the Georgian Revenue Service involves several key stages:

1. Planning

Risk Assessment

The Georgian Revenue Service uses risk-based criteria to select taxpayers for audit. Factors include the size of the business, industry sector, and history of compliance. This risk-based approach ensures that resources are focused on areas with the highest potential for non-compliance.

Official Notification

Taxpayers selected for audit receive a formal notification on their RS portal specifying the audit's scope, the required documentation, and the timeline for submission. This notification ensures that taxpayers are fully informed and can prepare accordingly.

2. Fieldwork

Document Review

Auditors examine a wide range of documents to verify the accuracy of reported information. This includes financial statements, tax returns, invoices, receipts, and bank statements. The thorough review ensures that all financial activities are accurately reported and taxed.

Information Requested by the Revenue Service Office:

Description of Business Activities: A detailed overview of the business operations, including the nature of goods or services provided, expenses, and operational processes.

Database from the Bookkeeping Software: Access to the digital records from the business's accounting software. This database includes detailed entries of all financial transactions.

Agreements and Other Supporting Documents: Copies of contracts, agreements, leases, and other documents that support the financial transactions reported. This helps auditors verify the legitimacy and accuracy of reported income and expenses.

The Georgian Revenue Service has the right to request all of the mentioned information in the Georgian language. While they are typically fine with English versions of the documents, if the documents are complex, the RS audits may require them to be translated into Georgian and notarized. This ensures clarity and legal validity in the audit process.

Interviews and Observations:

Auditors may conduct interviews with the taxpayer and their staff and observe business operations to gather additional evidence.

Testing Transactions

Specific transactions are tested to ensure they comply with tax laws and regulations.

3. Reporting

 Preliminary Findings: Auditors present preliminary findings to the taxpayer, allowing for discussion and clarification. This stage provides an opportunity for the taxpayer to explain any discrepancies and provide additional information.

Final Audit Report: After considering the taxpayer's input, the final audit report is issued. This report includes the auditor's conclusions and any necessary adjustments to the taxpayer's financial statements or tax returns. It is shared with the taxpayer and relevant authorities.

What Happens if a Business Doesn't Agree with the Audit Decision?

If a business disagrees with the audit findings, it has the right to contest the decision through an administrative appeal process. This process involves several steps:

1. Filing an Appeal: The business can file an appeal with the Georgian Revenue Service (GRS) within a specified period, typically within 30 days of receiving the final audit report. The appeal should include a detailed explanation of the points of disagreement and any supporting documentation.

2.. Review by the Appeals Committee: The GRS's Appeals Committee reviews the appeal, examining the original audit findings and the taxpayer's arguments. This committee consists of experienced tax professionals who are independent of the audit team.

3. Hearing: In some cases, the Appeals Committee may hold a hearing where the taxpayer can present their case in person. This allows for direct communication and clarification of any issues.

4. Decision: After reviewing the appeal, the Appeals Committee issues a decision. This decision can either uphold the original audit findings, modify them, or overturn them based on the evidence presented.

5. Further Legal Action: If the business is not satisfied with the decision of the Appeals Committee, it has the option to take the case to court. The Georgian judiciary provides a further avenue for resolving tax disputes, ensuring that taxpayers have access to a fair and impartial legal process.