Business partner due diligence - key to a successful tax audit

Business  partner due diligence – key to a successful tax audit

Minimise your tax risk by introducing good business partner due diligence practices

Many companies only realise the importance of verifying their business partners and the existence of related documentation during a tax authority audit, when they are required to present their contracting procedure and, for certain business partners selected by the tax authority, their due diligence documentation. 

In order to enforce the right to deduct VAT, the tax authority always requires the recipient of the invoice to carry out a so-called "business due diligence procedure" [Section 168/A (2) of the VAT Act] and to provide the tax authority with the relevant documents during any tax authority audit.   

The tax authority will consider the documents provided when assessing the enforceability of the right to deduct tax, together with the other evidence available, and will assess them as a whole.

As part of the service pertaining to business partner/company due diligence, RSM consultants examine whether the quality of the preliminary business partner due diligence procedure applied by taxpayer meets the requirements of the tax authorities and courts.

RSM's experienced tax advisors can help you develop good preliminary due diligence practices:   

• they will present databases where taxpayers can check their business partners,
•  they will explain the mandatory steps of the preliminary due diligence procedure required by the tax authority, and analyse the practice of the tax authority and courts in relation to the VAT deduction right, 
• they will examine the contractual background of taxpayers in order to mitigate future risks and, if necessary, propose changes and additions to the wording of contracts and other documents,
• they pay particular attention to presenting sector-specific requirements,
• depending on the economic sector, they will tailor the required partner due diligence process, review the taxpayer's existing control practices and make recommendations on how to make them as risk-free as possible.