Recently, I've come across some friends who have received self-inspection or audit notices from the tax authorities. They have been checking for several years, leaving many friends confused. Today, let's talk about how long tax audits last? Tax inspection is not about "checking the present", but about "bringing up old accounts"! A single inspection may trigger a chain reaction of landmines laid by an enterprise five years ago. Exclusive Easy Finance and Taxation reveals the rules of the inspection period for you, eliminates the mentality of taking chances, and safeguards the lifeline of entrepreneurship. Help you avoid those invisible pitfalls! Help entrepreneurs operate in compliance and master the essential tax and finance survival guide - save money and comply!

What is tax inspection? The "magic sword" granted by law to tax authorities

Definition:

       The law enforcement act of the tax authorities conducting mandatory inspections on the tax returns, accounting books and vouchers, business operations, etc. of taxpayers and withholding agents in accordance with the law to verify whether they have fulfilled their tax obligations in accordance with the law.

Legal basis

       Article 54 of the "Law on the Administration of Tax Collection" stipulates that tax authorities have the right to conduct tax inspections, including checking account books, vouchers, reports, on-site verification, inquiries, and obtaining evidence, etc.

       Article 55 of the Law on the Administration of Tax Collection: When conducting tax inspections on the tax payment situations of taxpayers engaged in production or business operations in previous tax periods in accordance with the law, if it is found that they have evaded tax obligations and there are obvious signs of transferring or concealing taxable goods or commodities, measures such as tax preservation or compulsory enforcement may be taken.

       The core objective is to combat tax evasion, fraud and tax resistance, maintain tax fairness and order, and ensure that all tax revenues are collected by the state.

Under what circumstances will a tax inspection be triggered?

Tax inspections are not random lotteries. The following situations are very likely to "get oneself into trouble" :

1.Warning of Abnormal data

       The declared income is seriously inconsistent with the industry level. The cost and expenses are abnormally high. The value-added tax burden rate has been persistently low for a long time. Abnormal invoice issuance/receipt (such as a large number of over-limit invoicing, mismatch between purchase and sales).

2.Report clues

       Internal employees, competitors or partners who report under their real names (with a maximum reward of 100,000 yuan!)" .

3.Industry-specific rectification

       For instance, the recent concentrated inspections in the cultural and entertainment sector, live-streaming e-commerce, medical aesthetics, and tax-related intermediaries.

4.Upstream and downstream linkages

       If your supplier or customer is found to have issued false invoices or evaded taxes, your enterprise will be "followed in the clues".

5.Random spot check

       The "dual random, one open" spot-check mechanism of the tax system (although the probability is low, it cannot be ignored).

6.Major tax-related matters

       Key nodes such as equity transfer, cancellation and liquidation, application for tax refund, and enjoying huge amounts of tax benefits.

       Entrepreneur's motto: There's no such thing as "can't be found", only "whether to find it or not". In the era of big data, all business traces can be traced.

How many years will tax audits last exactly? The key lies in these three "time red lines"

       The duration of the investigation is not a one-size-fits-all approach. The law sets out three key dividing lines based on the nature of the fault:

Analysis of Key Points

01Is "three years" the safety line?

       Wrong! Even if there is a calculation error, if the single payment or the cumulative underpayment exceeds 100,000 yuan, the period will automatically jump to 5 years.

02Is "five years" the ceiling?

        Wrong! Once identified as theft, tax evasion, fraud or tax resistance, the inspection can be traced back to the initial occurrence of the illegal act (such as the establishment of the enterprise), with no time limit.

03When does the period start to be calculated?

       It shall be calculated from the day following the end of the tax year in which the tax should have been paid but was not. For example: If you underpay taxes in 2023, the collection period will be calculated from January 1, 2024.

Blood Pool Case: In 2024, a garment factory in Dalian was fined seven years for issuing false invoices

       Case background: A certain garment processing factory in Dalian was subject to a tax inspection in March 2024. After investigation, it was found that from 2017 to 2020, the factory accepted 87 false value-added tax special invoices issued by upstream enterprises through fictitious procurement business, involving a tax amount of 2.1 million yuan, all of which have been declared for deduction.

       Qualitative: It constitutes "tax evasion" (Article 63 of the Tax Collection and Administration Law) and "issuing false invoices" (Article 37 of the Invoice Administration Measures).

       Collection period: As it is a tax evasion act, the investigation period is not subject to the five-year limit. The inspection scope covers the period from 2017 to 2020 (the period when the illegal act occurred) and subsequent influencing years.

Penalty：

       Back tax payment + late payment penalty: Recover 2.1 million yuan of value-added tax, increase the enterprise income tax accordingly (by 25% of the inflated cost amount), and add a 7-year late payment penalty (annualized 18.25%!)" .

       Fine: A fine of one times the amount of tax evasion (2.1 million yuan) will be imposed. An additional fine of 500,000 yuan will be imposed for the act of issuing false invoices.

       Criminal liability: Due to the huge amount involved, the case was transferred to the public security authorities for investigation and filing.

       The company's outcome: The total amount of back taxes, fines and late payment penalties exceeded 8 million yuan. The boss is facing criminal prosecution and the company is on the verge of bankruptcy.

       Entrepreneurs' warning: A false account from seven years ago is enough to destroy a business today. Tax evasion is a "time-lapse bomb".

Entrepreneur Survival Guide: How to Deal with the "Audit Time Red Line"?

1.Respect the rules and avoid taking chances

       Don't believe that "no old accounts can be found". Those who deceive and evade taxes will be held accountable for life.

2.Establish accounts early and follow the norms from the very beginning

       The company should establish compliant ledgers and keep complete vouchers (invoices, contracts, bank statements) in the first month of its establishment.

3.Critical point control

       Do not make a single tax payment exceeding 100,000 yuan to avoid triggering the five-year collection period.

4.Annual health check-up

       Hire a third-party auditor or tax and finance consultant to conduct a tax risk assessment every year. Any issues can be proactively corrected within three years.

5.Preserve the chain of evidence

       Large transactions, related-party transactions, and cost allocation must retain genuine business evidence (the integration of logistics, capital flow, and contract flow).

6.Remain calm when encountering inspections

       Immediately initiate an internal self-inspection and sort out the annual accounts involved in the audit.

       Cooperate in providing materials to avoid being identified as "obstructing inspection";

       Hire a professional tax lawyer or advisor to assist in handling the situation and strive for the best outcome.

Conclusion

       The "time sword" of tax inspection hangs high, and the only safety rope for entrepreneurs is to operate in a standardized manner from day one. Rather than betting that the inspection will not bring up old accounts, it is better to ensure that every account can stand up to indefinite scrutiny. Starting a business is like a marathon, and tax compliance is the bottom-line equipment for completing the entire course - respecting tax laws is respecting the life of an enterprise.