Are you ready for a URA visit?
A URA tax investigation can be stressful for any business, but key to reducing the stress is understanding the nature and scope of the investigation.
Here’s a guide to the different types of investigations that are carried out by the URA.
A returns examination is the most basic investigation that is performed by the URA. It involves the verification of information declared by a taxpayer on a return and its comparison against the financial, accounting, and other documentation to confirm that the return is a fair and accurate representation of the taxpayer’s tax position. Any taxpayer can be selected for this examination however, high risk taxpayers such as multinational companies and large corporates are more prone than others.
A compliance advisory may follow a returns examination. This is a letter to a taxpayer informing them of the compliance issue that has been identified. The taxpayer will be given the opportunity to rectify or amend their return. An example would be where a taxpayer has classified standard rated sales as zero rated on their VAT return.
The URA may ask a taxpayer to perform a self-review of its compliance status and report back. This normally requires the taxpayer to appoint independent advisors (at the expense of the taxpayer) to perform the review.
Depending on the outcome of the above preliminary investigations, URA may refer the matter for an audit. An audit is an examination of the financial, accounting, and other records of the taxpayer to determine whether the taxpayer has correctly declared their tax position. URA will formally notify the taxpayer of the audit and will specify the subject matter and the period.
There are different types of audit and these largely depend on the scope.
Issue audits are confined to an item (s) of potential non-compliance that may be apparent from examination of a taxpayer’s return. These typically take less time to perform due to their limited scope and can be used to review large numbers of taxpayers having similar issues of non-compliance. These are often performed as desk audits and involve minimal or no field work. An example of an issue audit would be a review of taxpayers’ international transactions to confirm whether VAT and withholding tax have been correctly accounted for.
On the other hand, comprehensive audits are all-encompassing and entail the examination of all information relevant to the calculation of a taxpayer’s tax liability for most or all tax heads. The objective is to determine the correct tax liability for the entire business. They involve extensive field work, are time consuming and will normally take at least 2 years.
Taxpayers seeking a refund from URA will be subjected to a refund audit to verify the claim and this takes place before the refund is processed.
Certain audits are undertaken by specialized teams of URA due to the technical nature of the subject matter. For example, customs post clearance audit is performed by the Customs Department to examine, after Customs has released cargo to the taxpayer, of the relevant commercial data, sales contracts, financial and non-financial records, physical stock, and other assets of traders. The aim is to verify whether the taxpayer complied with with the customs rules and procedures at the time of importation. Areas of focus include; classification of the imported items, the declared values and the use of the items in the taxpayer’s business.
Transfer pricing audits are another example of specialized audits. They focus on cross border transactions between related parties. The objective is to determine whether transactions between Ugandan companies and their non-resident associates lead to a loss of tax revenue through profit shifting. These are complex audits as they involve review of records of both the local and the non-resident persons.
Finally, investigations that are carried out by URA’s tax investigations department are the most complex ones. These deal with cases of non-compliance involving tax related crime such as evasion or fraud and can lead to raids, criminal prosecution, and closure of your business.
Crystal Kabajwara is an Associate Director with PwC Uganda’s tax practice.