Tax Audits Without Panic: How Businesses Can Protect Themselves

Tax audits are an integral part of the control function of any state. Through them, governments ensure budget revenues, prevent tax evasion, and maintain fair competition among taxpayers. At the same time, for businesses, a tax audit is almost always associated with risks — financial, reputational, and operational.

The real problem often lies not in the audit itself, but in a lack of understanding of one’s rights and of the procedures that controlling authorities are legally required to follow. This lack of awareness frequently creates room for abuse of power, unlawful demands, and rushed decisions by businesses under pressure.

The purpose of this article is to explain how the tax audit mechanism actually works, which legal rules govern it, and how businesses can prepare in advance to minimize risks and preserve operational stability.

What Is a Tax Audit and What Regulates It

A tax audit is a form of state control during which tax authorities verify the correctness of tax assessments, the completeness and timeliness of tax and fee payments, and overall compliance with tax legislation. Its purpose is not punishment as such, but the identification of violations and the lawful replenishment of the state budget.

The core legislative act governing this area is the Tax Code of Ukraine, in particular Chapter 8 (Articles 75–86), which defines the types of audits, the grounds for conducting them, the procedure for documenting results, and the rights of taxpayers. In addition, audit procedures are further detailed in subordinate regulations issued by the Ministry of Finance, including rules on audit planning and reporting.

It is also essential to remember the principle enshrined in Article 19 of the Constitution of Ukraine: state authorities may act only within the scope of their powers and in the manner prescribed by law. For businesses, this means that any deviation from established procedures may constitute grounds for legal protection and appeal.

Types of Tax Audits

The Tax Code provides for three main forms of tax control, each with its own characteristics.

A desk (cameral) audit is conducted without the taxpayer’s involvement, at the premises of the tax authority. It is based exclusively on tax returns and internal information systems of the tax service. Its purpose is to detect arithmetic errors, late filing of returns, violations of invoice registration deadlines, or delays in tax payments.

A documentary audit is more comprehensive. It may be scheduled or unscheduled, on-site or off-site, and in certain cases electronic. During such audits, tax authorities analyze primary accounting documents, contracts, bookkeeping and tax records, as well as transactions with counterparties.

A factual audit is carried out at the place where business activities are actually conducted — such as shops, offices, fuel stations, or warehouses. Its purpose is to verify compliance with cash handling rules, settlement procedures, licensing requirements, and labor regulations. Importantly, such audits may be conducted without prior notice, but only when statutory grounds exist.

The results of any audit must be documented in accordance with Article 86 of the Tax Code of Ukraine: if violations are identified, an audit report is issued; if no violations are found, a certificate is prepared.

Preparing for an Audit Is Not a One-Day Task

Tax audits rarely come as a surprise to businesses that manage risks systematically. Even before an audit begins, it is important to determine whether the tax authority is legally entitled to conduct it, as temporary restrictions or moratoria on inspections may apply during certain periods.

Effective preparation starts with analyzing the company’s tax profile: whether it is included in the audit plan, which reporting periods may be reviewed, and which taxes present the highest risks. Practice shows that a preliminary internal audit often allows businesses to identify and correct errors before inspectors arrive — and to do so in a lawful manner.

Special attention should be paid to employment relations, licensing and permit documentation, and transactions with counterparties. Cooperation with companies that show signs of risk frequently becomes a basis for additional tax assessments, even where the taxpayer has acted in good faith.

It is equally important to designate responsible persons for communication with tax authorities.

Practice Example: How a Preliminary Audit Helped Avoid Penalties

In tax dispute practice, there are many cases where timely preparation helps prevent serious consequences. In one such case, a company that learned it had been included in the audit plan initiated an internal review with the assistance of external consultants. The review revealed inaccuracies in the recognition of expenses and VAT input tax credits.

These errors were corrected by submitting amended tax returns and properly documenting the relevant transactions. When the tax authority later commenced the scheduled audit, there were no grounds for additional assessments or penalties. As a result, the company not only saved money but also preserved its reputation as a compliant taxpayer.

What Documents May Be Requested During a Tax Audit

Ukrainian law does not provide a single exhaustive list of documents subject to review during a tax audit. The scope depends on the type of audit and the specifics of the company’s activities. Typically, tax authorities may request tax returns, contracts with counterparties, primary accounting documents, bank statements, cash and settlement records, internal corporate policies, and documents confirming the right to engage in certain regulated activities.

For this reason, the key factor is not storing documents “just in case”, but maintaining systematic records and being able to substantiate each business transaction.

In Conclusion

A tax audit is not an extraordinary event, but a regular element of the legal environment in which businesses operate. The greatest risks arise not from the audit itself, but from a lack of preparation and legal support.

Consistent accounting practices, preliminary audits, and the involvement of tax law professionals allow businesses to turn audits from a source of stress into a manageable process — and to protect both their financial interests and their business reputation.