9.9 Tax Investigation Framework

What is Tax Investigation

Tax investigation is an inspection of taxpayer's business and / or individual books, records and documents. This inspection is to ensure the right amount of reported income and paid taxes required under laws and tax provisions. The investigation will be carried out only in cases where is suspected on the basis of precise and clear evidence that the tax payer is deliberately trying to avoid paying taxes or having committed an act of willful deceit under the Act, such as real property gains Tax Act ITA and 1976, the Petroleum(Income Tax) Act 1967, Promotion of Investment Act 1986, the Stamp Act 1949 and the Labuan Offshore Business Activity Tax Act 1990. There are two categories as follows:
1. Civil Tax Investigation Civil tax investigation activity involves detection of tax evasion. The primary concern being recovery of tax loss and imposition of heavy penalties.
2. Criminal Tax Investigation Functions and work procedures involving criminal tax investigation are similar to that of civil investigation. However with criminal investigation, it more focus on gathering admissible evidence with a view towards prosecution and conviction of the tax evader for commission of offences pursuant to ITA, Penal Code (Act 574), Criminal Procedure Code (Act 593), Evidence Act 1950 (Act 56) and other relevant Acts.(Hasil, 2007).
How A Tax Investigation is carried out
1. The Visit Tax investigations conducted by the IRBM will be a surprise visits to taxpayer’s business premises, residential houses, agents / representatives and various third parties’ premises. The survey will be conducted in a professional and courteous, fair and reasonable manner with the provisions and regulations of the ITA. During the visit, the investigating officer is required to introducing himself, show the authority card bearing his name and images. Authority card containing a statement that empower employees have full and free access to all places and all books and other documents, and search the place and may inspect, copy or take extracts from any book or the document without making any payment or rewards. At the beginning of the tours he has to explain the purpose of the visit to the taxpayer. Inform the taxpayers the scope and duration of the investigation and required documents and records for the purpose of investigation. Inform them the name, phone number, of the investigation officer and the senior officers who would be overseeing the investigation during the visit. Outlines the rights and responsibilities of taxpayers during visit. Then, conducting research in all the places visited. To access, download and take ownership related information from all electronic storage media. Interview and take statements from contributors and relevant during the inspection visit. Give a reasonable time for contributors to the document set records and documents to help and related tax research. Seize and take possession of the books, records and documents in connection with the investigation and Provide an acknowledgment documents books of accounts and records, as confirmed by Inquirer and contributors.(Hasil, 2007).
2. Examination of Records The investigating officer is required to reviewing business books or records of individual taxpayers and personal’s documents, the books, records and documents of the taxpayer. This exam is conducted to help determine the IRBM the amount of income tax evaded, if any, through direct or indirect method of proof; and To request a person to provide information, documents, records or other roles in the custody or under the control of person.(Hasil, 2007).
3. Findings and Discussion The investigating officer is required to interview and conduct of the meeting at any time in the offices of the IRBM except during an inspection tour. For the investigation of tax crimes cases, however, meetings, interviews and deposition recording can be done in any convenient location provided the process at all times with the participation of two research officer. They also allowing taxpayers to choose the tax agent / representative to act on their behalf and they have to allow tax agent / representative to attend interviews with real taxpayer condition that the proper power of attorney presented. Where existing fiscal agent representing taxpayers a separate letter of authority required to work with IRBM and tax agent / representative statements taken during interviews / meetings with the IRBM can be used in litigation tax criminal investigation. Make sure all correspondence between the IRBM and fiscal agent / Representatives are in the "Without Prejudice" basis, with except in cases of criminal tax investigations they are allowing taxpayers to take notes of any conversations or interview and a copy of the licensing interview or discussion notes within the application, such as copy signed by both parties and the investigating officer shall explain all the facts, agreements, the issues discussed are confidential between the IRBM and the taxpayer or its appointed agent. In cases of criminal tax investigations, however, a copy of the interview / Note the discussions and recording the testimony of witnesses can not be given to the representatives of taxpayers or witnesses. (Hasil, 2007).
4. Finalisation of Tax Investigation Upon finalisation of a civil tax investigation case, a written settlement agreement will be entered into between the Director General of Inland Revenue (DGIR) and the taxpayer. The following information should be included: ■ Name, identity card / company registration number ■ Period covered by the tax investigation ■ The amount of tax undercharged and penalties ■ Initial payment and the installment payment / scheme in respect of the undercharged and penalties, where applicable. If no findings are made, the IRBM will issue a letter of confirmation to the taxpayer stating that no findings were made for the period investigated.(Hasil, 2007).

Reference
Hasil. (2007). Inland revenue board Malaysia.