Tax offenses and tax audits

If a taxpayer carries out transactions or sequences of transactions, the purpose of which is to obtain unjustified tax benefit such as non-payment or reduction of taxes to be paid, such actions shall be recognized as the abuse of rights.

In case of the abuse of rights, tax authorities shall be entitled to apply necessary measures to eliminate the consequences of the abuse of rights, if disagreed by the taxpayer then appeal to a court.

Tax offense and liability

Financial sanctions for tax offense

Failure to register as a taxpayer of value added tax, when required, shall entail the imposition of fine in the amount of 5% of the income earned, but not less than 5 million Uzbek soums.

Engaging in business which gives rise to a permanent establishment in Uzbekistan by a foreign entity without due registration as a taxpayer shall entail the imposition of fine in the amount of 10% of the income earned, but not less than 10 million Uzbek soums.

Failure to file tax returns in due dates shall entail the imposition of fine in the amount of 1% of unpaid tax for each day of delay, but not more than 10% thereof in total.

Concealing (understatement) of the tax base shall entail the imposition of fine in the amount of 20% of the concealed (understated) tax base.

Non-payment or incomplete payment of the tax due as a result of inaccurate calculation of tax liability or other illegal actions, unless qualified as another tax offense, shall entail the imposition of fine in the amount of 20% of the unpaid tax.

Non-payment or incomplete payment of the tax due as a result of application of transfer pricing rules shall entail the imposition of fine in the amount of 40% of the unpaid tax.

Laws of Uzbekistan regulate other types of tax offense as well.

Administrative and criminal liability for tax offense

The executive officer of a business entity may be brought to administrative or criminal liability for the tax offense committed by the business entity. The application of financial sanctions to an organization does not exempt its executive officer from administrative or criminal liability.

Administrative liability may be administered for failure to comply with the mandatory registration of a lease agreement with state tax authorities, evasion of taxes or other mandatory payments, and violation of the procedure for conducting cash transactions.

Criminal liability may be applied for evasion of taxes or other mandatory payments in large and extra-large amounts.

Administrative or criminal liability also arises on other grounds provided for by law.

Suspension of bank accounts

Taxpayer's bank accounts shall be suspended at the request of tax authority in the following cases:

• taxpayer's failure to submit financial reports and/or tax returns more than 10 days late after a reporting due date
• taxpayer's failure to provide explanations, corrections and/or documents in response to tax authority's request
• obstructing access to territories and premises (other than residential premises) for tax authority officials conducting tax audit
• absence of taxpayer at its registered address

Decision to suspend taxpayer's bank accounts can be made by tax authority for a period not exceeding 10 days. Decision to suspend bank accounts for more than 10 days shall be made by a court.

Collection of tax debts

Collection of tax debt from a taxpayer shall be carried out first from the funds in bank accounts, and if it was insufficient – from other property of the taxpayer.

If a taxpayer found out about a scheduled tax audit and transferred its funds or other property to other persons, the collection of the taxpayer's tax debt may be made from these persons.

The collection of tax debt shall be carried out by the tax authority by sending a collection order to the bank where the taxpayer has accounts. The collection order shall be issued no later than 3 working days after the expiration of the period for the payment of tax.

If the tax debt of a taxpayer cannot be collected in cash from bank accounts, the tax authority has the right to collect it at the expense of other property of the taxpayer. Collection of tax debt from other property has to be authorized by a court.

Seizure of property of a taxpayer

Seizure of property as a method of collecting tax debt is the action of the tax authority to restrict the taxpayer's property rights in relation to its property. Seizure of the taxpayer's property shall be carried out in the event of incomplete payment of the tax debt within 15 calendar days from the date of sending of the tax authority's collection notice.

The seizure of property may be administered when there are insufficient funds in the taxpayer’s bank accounts to ensure the fulfillment of its obligation to pay taxes, accrued penalties and fines. Only the property which is necessary and sufficient to pay off tax debts must be subject to seizure.

The seizure of property for tax debt shall be carried out by a court decision. If the taxpayer acknowledges its tax debt, the tax authority may seize the property of the taxpayer based on the decision of the tax authority.

The seizure of property shall be accompanied with video recording, and if this is not possible, with the participation of witnesses.

Appealing against actions of tax authority

Decisions and actions of tax authorities may be appealed to the tax committee or to the court at the discretion of the taxpayer.

Decisions of tax authorities that were made based on the results of on-site tax audit or comprehensive tax audit may be appealed in court only after they have been appealed to a higher tax authority. A complaint to a higher tax authority against decisions made upon the results of on-site audit or comprehensive audit may be filed within 1 month from the day when the taxpayer learned or should have learned of the violation of its rights in connection with the audit.

Filing a complaint with a higher tax authority or with a court suspends the execution of the contested decision, as well as the application of financial sanctions (fines).

In the event of cancellation of a decision of the tax authority made upon an audit, the unlawfully collected funds are subject to return to the taxpayer with interest.

Tax audit by tax authorities

Tax audit by tax authorities is performed in the form of desk audit, on-site audit and comprehensive audit.

The auditable period cannot extend beyond previous 3 years. Tax authorities do not have the right to conduct a new audit on the same subject for a previously audited period and to request documents previously submitted by the taxpayer.

Desk audit is the inspection of taxpayer's financial reports, tax returns and other documents available to tax authority, during which taxpayer might be required to provide justifications on the submitted tax returns or to introduce corrections thereto.

On-site audit is the on-site inspection of taxpayer's accounting policy, movement of inventory and cash, operation of cash register, etc. On-site audit should not extend for more than 10 days.

Comprehensive audit is a full-scaled inspection of calculation and payment of taxes by taxpayer. Normally, taxpayer should be notified of the commencement of comprehensive audit 30 days in advance. Comprehensive audit should be carried out within 30 days, unless extended on reasonable grounds for up to 6 months.

On-site audit and comprehensive audit shall be carried out with notification of the Commissioner for Protection of Rights and Legitimate Interests of Entrepreneurs under the President of Uzbekistan (biznesvakil.uz).

Desk audit

A desk audit is conducted by a tax authority based on submitted tax reports, financial reports as well as other documents and information available to the tax authority.

A desk audit is conducted on the basis of an order from the head (deputy head) of the tax authority. The order shall specify the taxpayer, the auditors, the audit deadline, the audit period, and the types of taxes being audited.

During a desk audit, the tax authority may request from the taxpayer accounting documents, explanations to the submitted tax reports, as well as other information related to the calculation and payment of taxes. The requested documents and explanations must be provided to the tax authority within 5 days from the date of receipt of the relevant request.

A desk audit may be conducted with the inspection of the taxpayer’s territories and premises during 1 working day.

On-site tax audit

During an on-site tax audit, an analysis of accounting documentation, movement of inventory and cash, verification of the use of cash register equipment and payment terminals, and test purchases shall be carried out.

An on-site tax audit is conducted following an order from the head (deputy head) of the tax authority. The order shall specify the taxpayer, the auditors, the timing and purpose of the audit.

An on-site tax audit is conducted within a period of no more than 10 days. The day when an on-site tax audit report is delivered to the taxpayer shall signify the end of the on-site tax audit.

Inspection of territories and premises shall be carried out with video recording, and if this is not possible, with the participation of witnesses.

A taxpayer has the right to refuse the inspectors of the tax authority into its territory in the following cases:

• the order to conduct an audit does not comply with the legal requirements
• the audit has not been agreed with the Commissioner for Protection of Rights and Legitimate Interests of Entrepreneurs under the President of Uzbekistan
• the inspectors do not have the identification documents authorizing them to inspect the activities of the taxpayer

Comprehensive tax audit

A comprehensive tax audit is the examination of the correctness of the calculation and payment of taxes and fees for a certain period. A comprehensive audit may be carried out in relation to a taxpayer belonging to the category of taxpayers with a high degree of risk.

A comprehensive audit may only cover the period following the last tax audit, but not more than the preceding 3 years.

Tax authorities shall send a notice to the taxpayer no less than 30 calendar days before the start of the comprehensive audit. The notice shall indicate the starting date of the comprehensive audit, the list of issues to be checked, and a preliminary list of required documents.

As a rule, a comprehensive audit cannot last more than 30 days. The audit period begins on the day the order for the comprehensive audit is handed over to the taxpayer. The duration of the audit may be extended up to 2 months, and in exceptional cases up to 3 months.

Inspection of territories and premises, as well as documents and objects, shall be carried out with video recording, and if this is not possible, with the participation of witnesses.

The taxpayer shall be required to confirm with a signature the receipt of a comprehensive audit report. The taxpayer's signature on the audit report shall not mean its agreement with the results of the tax audit.

Rights and obligations

The taxpayer has the following rights:

• be present during an on-site tax audit and comprehensive audit conducted on the territory of the taxpayer
• get acquainted with the materials of the on-site tax audit and comprehensive audit, as well as receive the reports of these audits
• do not comply with the instructions of tax authorities and their officials that do not comply with tax legislation
• appeal decisions of tax authorities, as well as actions (inaction) of their officials
• demand compensation for damages caused by illegal decisions of tax authorities or illegal actions (inaction) of their officials

Taxpayers are required to:

• appear at the tax authority upon the receipt of a summons to provide documents or explanations
• when selling goods and services, provide a purchaser with checks or other equivalent documents
• ensure access of tax officials conducting tax audits to review documents that serve as the basis for calculating and paying taxes
• comply with the lawful instructions of tax authorities, do not interfere with the lawful activities of the tax authorities and officials
• ensure the safety of tax reports and other documents necessary for the calculation and payment of taxes for 3 years

Rights and obligations of tax authority

Tax authorities have the right to:

• require the taxpayer to submit documents and information necessary for the calculation and payment of taxes and fees
• conduct tax audits and other tax control measures in accordance with the established procedure
• inspect the territory, production, warehouse, trade and other premises of the taxpayer used to generate income
• to carry out an inventory of property
• seal cash registers and storage areas for inventory items and documents for a period of no more than 2 days (for a period of more than 2 days with a court order)
• take photos and videos, receive explanations and other information
• independently determine the amount of taxes in cases of loss or destruction of accounting documentation by a taxpayer
• take measures for the collection of taxes
• review cases of tax offense and apply financial sanctions
• bring claims against taxpayers in court to confiscate illegally obtained funds
• demand translation of documents to Uzbek language
• summon taxpayers to tax authorities on the basis of a written notice to provide explanations in connection with the payment (withholding and transfer) of taxes
• suspend transactions on taxpayer's bank accounts and seize its property in accordance with the law

Tax authorities are obliged to:

• inform taxpayers of their rights and obligations during tax audits, as well as inform them of the results of the audits
• inspect reports and other information about violations of tax laws
• maintain confidentiality of tax information