Working Life > Self-Employment > Tax > Turnover Tax Audit

Turnover Tax Special Audit

Definition, Explanation

Self-employed, no matter if Freiberufliche (liberal professionals) or traders, are obliged to monthly respectively quarterly turnover tax advance returns and to annual turnover tax declarations. Here, it is generally not required to hand in the invoices to the revenue.

Also, the inland revenue can order a turnover tax special audit, according to § 196 of the Abgabenordnung (German revenue code). This is a field audit based on §§ 193ff of German revenue code. The auditing procedure is regulated by § 6 of the Betriebsprüfungsordnung (business auditing code) and is to be executed within the business premises. Auditing is done within the revenue's premises if there are no business premises and auditing within the holder's residence is not feasible. Special audits normally cover defined time spans of business activity, e.g. a certain past calendar year.

The revenue runs special audits on companies in order to

• have tax-liable goods and services taxed appropriately and in time. Especially private use of cars or cameras are noted
• ascertain the rightfulness of tax exemptions and tax reductions
• appropriately refund input tax

A turnover tax special audit can be ordered at any time. This is independent of annual turnover tax declarations.

Possible inducements of a turnover tax special audit:

• Input tax refund amount has been higher than turnover tax amount paid to the revenue
• The business model is not comprehensible, respectively not self-explanatory to the revenue. This is especially for newly founded companies
• The business' receipts are tax-exempt, e.g. because realized abroad (examples: Google AdSense, Amazon associate program)
• Invoices or credit notes are made other than in the usual way. Turnover comes in without invoices, transferred directly. E.g. Google AdSense merely provides statistics and a payment protocol according to which money is transferred. There is no individual credit note stating the payment
• Extra high input tax amount, e.g. through car purchase
• Invoices by companies whose entrepreneurial nature is doubted
• Alienation or withdrawal of real estate

Subjects of an audit:

• Non-invoiced services / products
• Compliance with legally required information on invoices
• Are the right values in the respective fields on an invoice? E.g. the field AfA, depreciation of fixed assets, must contain net values, pre-tax
• Foreign turnover tax can not be taken into account, e.g. when goods/services are “shipped in” from Austria
• Invoices must be only for expenses for business purposes. A camera, already, is a case of doubt, since it might be used privately, too. Also business cars are assumed to be used privately. Here, you can either calculate the pecuniary advantage by the generally designated method of the one-percent-clause (Ein-Prozent-Regelung / Listenpreismethode), or you must keep a driving logbook. Basis value for the one-percent-clause, again, is the net value of the car

Procedure of a turnover tax special audit:

• You receive a standard letter by the revenue titled “Anordnung einer Umsatzsteuer-Sonderprüfung (§ 196 Abgabenordnung - AO - )”
• By this letter, a turnover tax special audit is ordered
• The letter specifies the time span covered by the audit, e.g. the tax period of 2008, as well as the name of the inspector and place and date of the audit
• On the specified date, the inspector visits you and audits invoices (income and expenses), the bank account statements, and in how far the values stated in the tax declaration are true, what contracts are existing etc. Especially it is checked whether the input tax values are true, and whether the net and the gross values have been distinguished correctly. Additionally, questions about the business model are asked
• On the inspectors request, he must be handed out copies of any receipts / documents
• After the in-place audit has been executed and any values to be corrected in consequence of the audit have been transferred into the system of the revenue, a report is made. This report is usually sent to you. You can respond giving your opinion
• After the report has been accepted, you receive a corrected tax declaration. If it claims a negative total, you must pay the respective amount to the revenue

Tips, Checklist

• Especially if you are a business starter who is moreover making his tax declarations and advance returns without the help of a tax adviser, you must reckon to be special-audited
• A deferral of the auditing date is normally feasible by talking to the inspector
• Prepare a workplace for the inspector. He usually comes with your revenue file, a notebook, calculator and some reference books
• Make the inspector's work as easy and comfortable as possible. This includes:
  • Orderly storage of your receipts, preferably numbered non-ambiguously
  • Have your tax declarations at hand
  • On the inspector's request, copy documents like e.g. receipts from other persons or companies, likely to be demanded when they are without a tax number. Here, it will be checked whether the turnover tax which you have stated as input tax, has been deduced to the revenue, accordingly. Another purpose is verifying that the income amounts have been declared in the respective tax declarations
  • Cash vouchers for gastronomy expenses, as soon as they are made, should completely particularize the served person and the occasion of eating or drinking. Retroactive addition of information is illegal
  • Changes in monthly fixed costs like the rent, have to be announced by the claiming party, e.g. the landlord
• Answer the inspector's questions honestly and comprehensibly. Questions may be:
  • What are you doing? What is your business?
  • How do you make money with it?
  • How are you making a living if the income from the business are lower or only little higher than the expenses?
  • What is the income composed of? Who are your customers? Why are you having some turnover-tax-free income
• Rather hold back information, do not give more information than is being asked for
• Do not transfer any money yet when you have received the report of the turnover tax special audit, but only when you have received the subsequent tax declaration
• If after 10 years of business, the income is still lower than the expenses, then your business is considered amateurism. Then you will not be allowed to declare input tax any longer
• If you have a tax adviser, you should inform him at once about a received order of a turnover tax special audit. Speak things through with him. It might be advisable that he is present during the audit

Last update: 04/13/2010