If SMEs wish to avoid taking any risks and encountering unpleasant surprises during tax audits, they should be able to produce documentation of their procedures. We explain what needs to be documented and how, and what can happen if no such documentation is available.

No procedural documentation = No problem?

The requirement for procedural documentation stems from the „Principles on the proper maintenance and retention of books, records and documents in electronic form, as well as on data access’ – in short: GoBD “These principles issued by the Federal Ministry of Finance have been in force since early 2015.” To minimise the risk of an additional assessment, clearly structured procedural documentation should be available for every data-processing system, from which the content, structure, sequence and results of the data-processing procedure can be fully and coherently discerned.

The tax authorities often request procedural documentation as soon as the audit notice is sent, or at the latest when the tax audit begins. However, provided that missing or inadequate procedural documentation does not impair traceability and verifiability, there is no formal deficiency of substantive significance that could lead to the accounts being rejected. This is expressly stated in the GoBD in paragraph 155. Nevertheless, procedural documentation should be drawn up without delay, if this has not already been done. This is because, should there be substantive objections in addition to formal ones, a lack of procedural documentation is likely to result in a higher estimated value.

Every business has organisational and operational guidelines. In many small and medium-sized enterprises, however, these are only communicated verbally, or written instructions exist only for specific areas of work. Employees have often devised their own ways of organising their work. When implemented correctly, the tax authorities’ requirement to submit procedural documentation represents a major opportunity for all SMEs. After all, process descriptions enable workflows to be standardised and simplified, whilst structures and responsibilities can be carefully considered and ultimately set out in writing. Experience shows that many SMEs achieve significant savings in a number of areas as a result.

A documentary with added value

Procedural documentation must also be „put into practice“. Discrepancies between the description and actual procedures can lead to significant disadvantages, and not just in the event of a tax audit. In some cases, cost-benefit analyses are carried out, weighing up the likelihood and potential amount of a tax assessment against the costs of preparing procedural documentation. Such speculation is dangerous, as additional tax claims and the interest due on them, as well as possible criminal consequences, can threaten a business’s very existence.

Would you like to find out more about how to create procedural documentation safely and easily? Our Opti.Tax.Doku software can help you with this. Contact us today for a Live demo.