A tax audit, a nightmare you don’t want to have

A tax audit, a nightmare you don’t want to have

16. 07. 09

Recently there is a surge of tax audits in Sint Maarten and that offers work for tax advisors like myself. Be aware that this can happen to your business any day.
The process is as follows:
You get an invitation to come to the tax office or receive an auditor in your place of business, within certain amount of days.
You are requested to provide your full administration, including payroll administration, receipts, bank statements etc. and that includes digital files.
There is a section where they request corporate documents, such as, articles of incorporation, shareholders register, directorship and more.

This is how the outcome of almost all audits goes:

  •     There is always some flaw in your administration. (You or your accountant did something wrong!)

                       Nobody told you what the requirements are for a proper administration

  •     You didn’t save a receipt or another important piece of documentation

                      Are you aware of how long you have save certain documents?

  •     You are now in breach of a fiscal law (you are in big trouble now) and the auditor declares your administration null and void. This when it all goes haywire.

                     You were not aware of the enormous powers of a tax auditor

The auditor starts to fantasize and your nightmare begins:
Say you and your wife operate a small business that generates Naf 100.000 a year and your profit is Naf20.000, so you are struggling.


The auditor now really starts fantasizing:
He estimates your turnover at Naf 300.000 based on what he guessed or information he gathered from your supplier or your bank or just his thumb. Ok, you were hiding some income, but you didn’t report all expenses either. He estimates your gross margin at 45%.
This immediately puts your profit at Naf 165.000 @ 34.5% profit tax = Naf 56.925plus add 50% fine = Naf 85.000, for starters.
Another Naf200.000 undeclared turnover at 5% = Naf 10.000 Turnover Tax plus add 50% fine = Naf 15.000. That adds up, an easy Naf 100.000
And finally as the Naf 165.000 Is not on your balance sheet, the nightmare continues, the auditor assumes that the owner got that money, so he charges the owner Income tax, AOV and AVBZ over that amount. I won’t bore you with those amounts.
If this sounds bad, imagine these amounts over the last five years, or ten.
The auditors use articles in a certain tax law called“ALL”. You have never heard of it, (they are in Dutch), but they will try to denounce your administration; claim you are malicious (that allows him to go back 10 years) and assess and fine you. He states the burden of proof is on you.

 

Conclusion.

The days of just doing your administration yourself or some guy you know who can use QuickBooks do it, for you are over. I have recently been engaged by clients, through their accountant, because the accountant didn’t know what to do. Most accountants are not tax consultants and your administration is not safe from audits if it is in the hands of an accountant. Your company needs a tax expert. We can do an audit assessment on your administration and save you a nightmare. And if you already in an audit, we can help you wake up from the nightmare without a big headache.

 

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