In the relationship between taxpayers and tax authorities, the tax inspection and the documentary review are two fundamental procedures used to verify the accuracy of declared and paid tax obligations. While both aim to establish the taxpayer’s actual fiscal situation, they differ significantly in purpose, execution, and implications for companies.

A clear understanding of these differences is essential for any taxpayer who wants to efficiently manage potential interactions with the tax authorities.

What is a tax inspection and how does it work?

A tax inspection is a comprehensive procedure through which tax inspectors thoroughly examine the taxpayer’s fiscal obligations. It may cover the company’s entire tax activity or only specific taxes and fiscal periods.

The inspection can take place either at the taxpayer’s premises or at the tax authority’s office. During the process, inspectors may request additional documents, explanations, clarifications, or justifications related to the submitted returns. Typically, the inspection involves direct and ongoing interaction with the company’s representatives.

The process concludes with the drafting of a Tax Inspection Report, reflecting the findings of the tax authority. If noncompliance or discrepancies are identified, a Tax Assessment Decision is issued, which can be contested by the taxpayer in accordance with the legal procedure.

What is a documentary review and when does it apply?

In contrast, a documentary review is a much more limited and faster procedure, confined to the analysis of documents already present in the taxpayer’s file or obtained from third parties. It does not involve the physical presence of tax officers at the company’s premises, nor does it entail a review of the entire business activity.

Through the documentary review, the tax authority assesses the consistency and compliance of declared data, without extending the analysis to operational levels. This procedure is generally applied when there are specific signs of noncompliance or when additional clarifications are needed regarding certain returns or payments.

If discrepancies are found following the documentary review, the taxpayer receives an official notice requesting supporting documents and additional explanations to clarify the tax situation.

If the taxpayer does not respond within 30 days to the tax authority’s request, or if the explanations and documents submitted confirm the identified discrepancies, the tax authority has the right to issue a Tax Assessment Decision to establish the outstanding tax liabilities.

Even though the documentary review does not involve an on-site inspection, its effects can be significant. The issuance of a Tax Assessment Decision as a result of this procedure may lead to additional tax obligations and, in some cases, to a full tax inspection later on.

Key differences between tax inspection and documentary review

The tax inspection is a complex, detailed procedure conducted over a longer period and involves direct interaction with the tax authority. It offers the taxpayer more opportunities to support their position, provide additional documentation, and correct potential errors before the process concludes.

The documentary review, on the other hand, is an administrative analysis, quicker, and based solely on existing documents. It involves fewer direct interactions and may be perceived by the taxpayer as less intrusive, but it is also more rigid regarding the possibility of submitting additional explanations after the decision is issued.

In both cases, the ultimate goal is the same: identifying any tax irregularities and recovering amounts owed to the state budget.

The most important difference between the two types of tax control is that a tax inspection closes the fiscal period—meaning the inspected period can no longer be the subject of another tax inspection for the same taxes. In contrast, the assessment decision issued during the documentary review is provisional and subject to further verification.

In other words, the latter does NOT close the fiscal period, and ANAF (the Romanian tax authority) may return at any time to conduct a new review for the same taxes and the same period!

How should taxpayers respond to a tax audit?

Regardless of whether it is a documentary review or a full tax inspection, the taxpayer’s approach during the control is extremely important.

In the case of a documentary review, it is essential for the company to carefully analyze the received notice, verify the accuracy of accounting records, and prepare a complete, well-reasoned response, accompanied by all necessary supporting documents.

If a Tax Assessment Decision is received following the review, the taxpayer has the right to contest it within the legal deadline provided in the Fiscal Procedure Code. However, a proactive approach, with clear and complete answers, can prevent such decisions from being issued.

When it comes to tax inspections, open collaboration, prompt submission of requested documents, and constant communication with tax inspectors can make the difference between a control concluded without major adjustments and one with significant financial consequences.

How can Cabot Transfer Pricing help?

The support of a specialized tax consultant can fundamentally change the way a company handles a tax review. Cabot Transfer Pricing offers full assistance in:• Reviewing tax documentation before the audit;

• Assistance in preparing responses to the tax authorities;

• Strategic consulting for managing complex tax inspections;

• Representation before tax authorities and support in potential appeals.

A well-defined tax strategy supported by specialists significantly reduces the risk of fiscal adjustments and ensures compliance with ever-changing legal requirements.

Contact the Cabot Transfer Pricing team to ensure your business is protected in the face of any type of tax audit.