Meaning
Administrative procedure conducted by provincial or municipal bureaus involves the detailed inspection of a company’s financial records and tax filings. A local tax authority audit verifies that the entity is paying the correct amount of Value Added Tax and Corporate Income Tax. This process often starts with a desk review of submitted documents.
It may escalate to an on-site visit for larger discrepancies.
Audit Scope
Inspectors look at bank statements and ledger entries for the previous three to five years. During a local tax authority audit, the focus is often on high-risk areas such as intercompany transfers or research and development credits. The bureau compares the reported data with third-party information from banks and suppliers.
Procedural Rule
Formal notices inform the taxpayer of the start date and the specific records required for the review.
Enforcement Outcome
Final reports from the bureau detail any underpayment of taxes and the resulting late fees. If a local tax authority audit reveals intentional evasion, the company faces heavy fines and a lower credit rating in the national social credit system. Taxpayers have the right to appeal the findings to a higher level of the tax administration.
However, the disputed tax must usually be paid before the appeal can proceed. This ensures that the state revenue is protected during the legal challenge.
