So, you are being investigated for tax?

Several individuals and businesses in the yachting and aviation sectors will find themselves subject to a tax investigation without there necessarily being any actual wrongdoing. Investigations usually start with enquiries and escalate where tax authorities identify possible infringements of the tax laws.

Tax investigations are on the increase because yachting and aviation activity is cross border, and because the authorities consider these sectors to be ‘high risk’. Also having an impact are perceived non-compliance, the availability of new media such as the internet, new information sharing agreements between national tax authorities such as the mutual assistance instruments between EU tax administrations, and the occurrence of specific events such as data leaks and sanctions.

Whatever the cause, tax investigations are subject to a Code of Practice which the tax officers must follow. The Code of Practice for indirect taxation draws from national tax management statutes, the pan-European VAT Directive, the Excise Directive, and the Union Customs Code. A typical investigation will evolve in stages, and you can expect meetings with the authorities, preparation of a discovery or disclosure report, assessment of tax liabilities, interest and penalties, reconsiderations, appeals, and rounds of negotiations. The process can be hugely stressful and disruptive for the taxpayer and for all concerned.

The outcome of a tax investigation is determined as much by the process as by the findings from it. For example, where the taxpayer makes material misstatements during the investigation, the authorities may broaden their focus into other areas of a taxpayer’s affairs or exercise their right to prosecute. And where an otherwise straightforward enquiry reveals serious fraud or tax evasion, then criminal proceedings may follow. That is why great care must be taken during a tax investigation, whether in preparing reports or in negotiating penalties.

When handling investigations, tax consultants will naturally aim to achieve a fair outcome for their clients whilst always complying with the tax legislation. But achieving success will depend on their capabilities in relation to the tax rules and processes, and on their ability to liaise effectively with experts to give their clients the benefit of specific professional disciplines. The direction of the investigation, the outcome with respect to the level of tax claim and resulting penalties, the level of client stress – these are some of the crucial factors to be managed during a tax investigation.

When a tax enquiry becomes an investigation then there may be a problem in the making. Summon help early to manage the process and ensure a fair outcome.


The content of this article is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content herein.