Receiving notice of a tax audit (“control”) from the Norwegian Tax Administration can be stressful for many businesses. It is easy to feel accused when your accounts are suddenly being scrutinized, and you may wonder what lies ahead for you and your company, and whether a large tax bill is coming. With the right preparation and knowledge of the process, you can handle an audit in a good way. In this blog, we briefly explain what a tax audit entails, and how you can best prepare yourself before, during, and after the audit.
What is a tax audit/control from the Norwegian Tax Administration?
A tax audit is the Tax Administration’s review of a company’s tax liability, tax base, accounts, and bookkeeping. This is one of the methods used by the tax authorities to ensure that businesses comply with the rules for accounting, bookkeeping, and taxation. The audit may range from a limited review of specific topics or items to a comprehensive audit of the company’s entire tax, VAT, employer’s National Insurance contributions, and bookkeeping situation.
The audit may take the form of a written request for information and/or an on-site inspection at the premises of the person who is legally required to provide information. However, the tax authorities cannot conduct an on-site inspection at a private residence unless the business is operated from the business owner’s home. During an on-site inspection, PCs, mobile phones, accounting records, and similar materials may be seized.
During the audit, the Tax Administration will review the company’s accounting records, vouchers, contracts, and other relevant documents. The purpose is to verify that:
- The accounts have been kept in accordance with the Bookkeeping Act and the Accounting Act
- All income and expenses are correctly recorded
- The basis for calculating tax is correct
- VAT has been calculated and reported correctly
It is important to note that an audit does not necessarily mean that the Tax Administration suspects wrongdoing. Many audits are routine checks or selected random samples.
The consequences of an audit may include amended tax assessments for up to ten years back, increasing the company’s taxes and duties for the years covered by the audit. The company may also risk penalty tax and coercive fines if it fails to provide requested information. In serious cases, a criminal complaint may be filed.
Also read: What can you expect from a business tax audit in Norway
Who can be subject to a tax audit?
All businesses may be audited. An audit may result from random selection, tips from the public, previous audits, or analyses conducted by the Tax Administration. The Tax Administration also has its own priority areas, and in some cases, audits may target particularly exposed industries such as restaurants, taxis, and construction.
It is therefore important to keep accounts, agreements, protocols, and email correspondence organized so you are better prepared for a potential future audit.
How many years back can the Tax Administration make changes?
As a general rule, the Tax Administration may amend tax assessments for the previous five years.
If the Tax Administration believes that there has been gross negligence or intentional misconduct, the period may be extended to ten years. This applies, for example, to serious accounting errors or deliberate tax evasion.
For this reason, it is important to retain accounting documentation for at least five years—and preferably longer—in accordance with the retention requirements in the Bookkeeping Act.
Notice of audit
Before initiating an audit, the Tax Administration will normally send written notice. Unannounced audits are rare. The notice will contain important information such as:
- What will be audited: which income years and which areas will be reviewed
- Timing of the audit: when the audit will be carried out
- Who will conduct the audit and their contact details
- Your rights and obligations: what you must do and what rights you have
When the business receives the notice, it is important to read it carefully and note all deadlines. It may also be wise to contact your accountant or auditor and begin gathering relevant documentation. You should also consider whether legal assistance is necessary. It is important that the correct facts are established early in the case and before the final audit report is completed, as it is more difficult to correct the facts later. Our recommendation is to seek assistance from a professional advisor before contacting or responding to the Tax Administration.
What information can the Norwegian Tax Administration require you to provide?
Information from the taxpayer
The audit rules are found in Chapter 10 of the Tax Administration Act. When the Tax Administration conducts an audit, the taxpayer has a statutory obligation to provide information that may be relevant to the company’s bookkeeping or tax liability.
This means the company must provide access to accounting material, minutes, vouchers, invoices, contracts, emails and correspondence relevant to the accounts, electronic accounting systems, data files, and similar information. The company should cooperate to fulfill its duty to provide information, but it is not necessary to provide more than what is requested. Maintaining good dialogue with the Tax Administration is important, and if you need more time, extensions are usually granted.
The taxpayer must provide the requested information regardless of any confidentiality obligations. However, the nature of the information and its relevance to the tax assessment may mean that certain information cannot be required. For example, patient records will normally not be suitable as audit material and therefore cannot usually be requested. If such information exceptionally becomes relevant, there must be compelling control considerations for access to be required.
The information collected will result in a control report forming the basis for any proposed amendments by the Tax Administration.
Information from third parties
The Tax Administration may also obtain information from third parties relevant to the company’s tax liability, typically banks or contracting partners.
Information from lawyers
Lawyers are subject to strict confidentiality. This means the tax authorities cannot demand access to correspondence or documents that are part of the lawyer's work for the client. Nor can the lawyer disclose such information without explicit consent from the client. The confidentiality obligation extends so far that the lawyer cannot even reveal who is or has been a client. In practice, this means that the Tax Administration's access is generally limited to information relating to the client account.
After the audit: Audit report/inspection report
Once the audit is completed, the Tax Administration will prepare an audit report. This is an important document summarizing the findings and forming the basis for any reassessed taxes and duties. If no changes are required, a so-called “zero report” will be issued.
Before issuing a final decision, the Tax Administration will normally send a draft report and allow the taxpayer to comment. The taxpayer may also request the opportunity to provide comments.
- What should you do?
- Read the report carefully
- Discuss the findings with your accountant or auditor
- Consider whether you agree with the conclusions
- Submit a written statement if you disagree or have additional information
- Document any counterarguments well
Notice of change and decision
If the Tax Administration believes that the accounts or tax calculations must be amended, they will issue a notice of change before making a final decision. The notice includes:
- The changes proposed
- The reasons for the changes
- Calculation of any additional tax, VAT, or whether the case may be reported
- Your deadline for responding (normally three weeks)
Once the taxpayer has had the opportunity to comment, the Tax Administration will issue a formal decision. The decision will contain:
- Final decision on changes
- Reasons for the decision
- Calculation of any penalty tax and interest, or information about a potential police report
- Information about appeal rights and the appeal deadline
Appealing the decision
If you disagree with the Tax Administration’s decision, you have the right to appeal. The appeal deadline is six weeks from receipt of the decision. The appeal should include:
- Which decision you are appealing
- What you disagree with
- Why you believe the decision is incorrect
- Any new information or documentation
- What you believe the correct outcome should be
If the Tax Administration does not uphold your appeal, the case will be forwarded to the Tax Appeals Board, an independent administrative body. The Board’s decision is final at the administrative level.
If you still disagree after the Board’s decision, you may bring the case before the courts.
With proper preparation, a tax audit does not have to be a problem
A tax audit does not have to be a negative experience if you are well prepared. Make sure your accounts are in order, store documentation securely, and seek professional assistance if you are unsure. Remember that you have rights throughout the process, and you can always appeal if you believe the Tax Administration has made incorrect assessments.
NEED ASSISTANCE WITH YOUR TAX AUDIT?
Our lawyers knows what it takes. Reach out today for assistance.
