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7 things to add to your international indirect tax audit checklist

Summary-

  • It is known that businesses dread audits. But strategizing beforehand and having a plan helps the tax audit processes easier.
  • Organizations selling across borders have to keep up with documentation as the penalties and fines of failing at the customs audits could be high. 
  • Including audit readiness in your tax compliance strategy will help you have a smooth, trouble-free audit experience.

One of the biggest challenges any organization can face is getting audited and if the audit is for cross-border transactions then the challenges multiply. Has your organization faced an indirect tax audit for cross-border yet? 

Yes? Well, how did it go?

No? Good, but why wait for it to happen?

Now a customs audit isn’t something you’d wish for anyone, but let’s be honest here, it is only a matter of time before it happens. Because according to a saying, everyone will be audited at some point in time. Many organizations begin their process of preparing for audits after receiving that letter, and that’s where the problem lies. It would be best to start preparing for an audit from the very beginning of starting your global trade. Because letter or no letter, the business must run smoothly, you must send the shipments on time and keep your customers satisfied, because you won’t get concessions there.

Organizations should occasionally check on whether they are ready for a sudden surprise letter. And doing so will help you tie up any loose ends for the time you actually receive one. This process is called audit preparedness, and many organizations are making audit-preparedness or audit readiness as a part of their international indirect tax compliance strategies.

Here are a few pointers you need to be mindful of  while checking your audit readiness.

  1. Check whether your customs manual is up to date. Incorporate timely measures to keep them up to date.
  2. Ensure that your compliance system has appropriate systems, controls, and links in place through every department.
  3. Trace your links for financial transactions and ensure that you have every financial statement or agreement. 
  4. Make sure that you document the methodology for assigning HS codes and document relevant rulings, case studies or other such reference material used for assigning them.
  5. Take a sample of your commonly occurring transactions and check them from end to end. Collect all relevant records in terms of information, details and free trade agreements or exemption certificates, if any.
  6. Make sure you resolve the discrepancies you find and add systems in place to ensure that they will not occur again.
  7. The best way of preparing your business for audit is by doing self-audit. Self-audit will make your business find its own drawbacks, and an actual audit will be a little less of a surprise.

An audit can be stressful, especially since you never know when an audit will happen. But the outcomes often come in the form of suggestions, recommendations, adjustments of duties and sometimes heavy penalties and fines. Whether learned the hard way or not, the lesson is that audit is a learning process and only makes your organization’s tax compliance strategy stronger.

We at Avalara encourage our clients to be audit-ready at all times. Our software solution helps unify data and makes the audit experience smooth. Organizations can avoid errors and get ahead with tax compliance with our AvaTax for Cross border.

International indirect taxation is a complicated game. Multiple tax jurisdictions are involved, and the rules and regulations keep changing. The best way of dealing with tax complexities is by following tax content. We keep posting relevant changes through our blogs and social media. Follow us to stay up to date with the news you need to know about indirect taxes and selling abroad.

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