GILS Tax law: Mongolia

TAX CONTROL AND APPEALING ITS RESULTS IN MONGOLIA

In Mongolia, tax control procedures are governed by the General Tax Law and Appendix 1 of Order No. A/70 issued by the Director of the General Department of Taxation, a procedure for conducting tax control. Under the General Tax Law, the Tax Administration conducts audits to verify the accurate determination of tax liabilities and timely payments by taxpayers. 

TYPES OF TAX CONTROL, THE PROCEDURE FOR CONDUCTING 

The tax office reviews taxpayer obligations based on: 

• risk assessment of the taxpayer;
• taxpayer-initiated requests. 

Tax audits are conducted in accordance with general and specific guidelines, either comprehensively or partially assigned, adhering to international standards and domestic legislation. A comprehensive audit is performed on all types of tax levies and payment statuses, while a partial audit focuses on one or more types of tax levies and payment statuses. 

Additionally, tax audits are categorized based on the scope of work as follow: 

• Simple inspection include audits other than simplified and complex tax audits;
• Simplified inspection are conducted electronically and through other means using data from tax registers, unified databases, and other relevant information;
• Complex inspection involves intricate operations, such as cooperation with experts in other fields, foreign authorities, and the implementation of general rules against transfer pricing and tax evasion.

The Tax Administration shall exercise the following powers for carrying out tax audits:

• To summon taxpayers and their counterparts on reasonable grounds, and obtain explanations regarding their activities;
• To conduct general operations specified in Chapter 5 of the General Tax Law, including accessing premises and warehouses, collecting data, information, and documentation, conducting inspections, and performing inventory audits;
• To obtain explanations and references pertaining to tax returns, accounting reports, account records, other financial documents, and information from the integrated tax registration and information database.

Taxpayers shall have the following rights and obligations in relation to tax audits:

• To protect their rights and legitimate interests personally and/or through their authorized representative or technical adviser, to be present during a tax audit, and to provide evidence and justification;
• To obtain or provide an explanation on tax assessments and payments, and on the progress and outcome of audits.
• To provide the Tax Administration with the financial and other documents necessary for the tax audit, electronically or in paper as required, and to undergo the tax audit.

Taxpayers shall receive at least 10 business day advance notice of any scheduled tax audit. 

Procedure for conducting tax audits: The tax audit will proceed through three stages: preparation, execution, and completion. A work plan will be drafted for each stage, and the activities will be documented in the tax register and unified database. Daily work records will be maintained to track progress.

1. During the preparation stage, the state tax inspector will send inspection information to the telephone and email addresses of taxpayers registered in the tax and database. In the simplified inspection, the tax authority will submit a request to correct the report and inform the taxpayer about the submission of documents, news, and information necessary for the inspection. During this stage, relevant information regarding the taxpayer's personal affairs, finances, tax returns, disclosures, and activities will be gathered from internal and external sources. Comparative research and analysis will be conducted based on this information. Subsequently, the state tax inspector will prioritize inspection activities according to their significance, establish a detailed sequence, and issue a "Tax Inspection Work Plan" (hereinafter referred to as "work plan") to be followed during the execution phase.

2. During the implementation stage, the state tax inspector will conduct inspections according to the work plan. Throughout the inspection process, the taxpayer will clarify any information deemed in violation of tax levies and payments, reconcile discrepancies, verify facts, obtain additional documents and calculations, and if necessary, collect and document information from third parties to substantiate any violations. The inspector will conduct inspections based on the relevant documents gathered during the process, meticulously documenting each detected violation with detailed lists and notes, making copies of necessary documents, and providing clarifications. At this stage, confirmed violations will be recorded, and additional taxes, fines, and penalties may be imposed.

3. During the finalization stage, the detected violation, its legal basis, and calculations will be presented to the head of the inspection unit for review. Based on the inspection results, a certificate of adjustment, a certificate of Value Added Tax (VAT) imposition and payment, and a report will be drafted, signed, and stamped by the state tax inspector conducting the inspection. These documents will then be verified and confirmed by the head of the inspection unit, and the decision will be signed and stamped to become effective. The tax re-assessment act, the validation of assessment and payment of VAT, and the notification sheet will be delivered to the taxpayer and their authorized representatives within 7 working days.

PROCEDURE OF APPEALING THE RESULTS OF TAX CONTROL 

In accordance with the General Tax Law, a tax act refers to the tax reassessment act, the validation of assessment and payment of Value Added Tax (VAT), and the tax refund act prepared by the state tax inspector. Based on the results of the tax audit, the Tax Administration shall conduct a tax reassessment act and validate the assessment and payment of VAT.

The tax re-assessment act and the report must be delivered within 7 business days from the date of effectiveness, with a record of such delivery noted. If the taxpayer does not accept the tax re-assessment act in whole or in part, a complaint can be filed with the Dispute Resolution Council within 30 days of receipt. When filing a complaint concerning the re-assessment act, the taxpayer must pay 10% of the disputed amount stated in the reassessment act in advance, not exceeding MNT 100 million.

Regarding the validation of assessment and payment of VAT:  The relevant tax office will receive the taxpayer's request for validation of the value-added tax assessment and its payment. Upon review and validation, the office will transfer the request to the Major Taxpayers' Office operating under the state administrative body responsible for tax matters. The Major Taxpayers' Office will review the VAT assessment and issue a validation report. If the taxpayer disagrees with the decision of the Major Taxpayers' Office, a complaint can be filed with the Dispute Resolution Council.

A taxpayer, an authorized representative of the taxpayer, or a professional tax consultant shall have a right to file a complaint to the respective Dispute Resolution Council within 30 days after receiving the tax act. A complaint shall be settled by the following jurisdictions: 

• Complaints from taxpayers under the jurisdiction of a Province, Capital City, or a city with state-grade status shall be resolved by the Dispute Resolution Council of the respective tax administration.
• The Dispute Resolution Council at the state administrative body responsible for tax matters shall resolve complaints from taxpayers under the jurisdiction of the Major Taxpayers' Office.

The Tax Dispute Resolution Council (hereinafter referred to as the "Dispute Resolution Council”) operates under the Tax Administration and reviews complaints and requests from taxpayers regarding tax acts.

The Dispute Resolution Council shall resolve a complaint within 30 days from its filing and deliver the decision to the parties involved. The Council may extend the deadline for issuing a decision once, for a maximum period of 30 days.

If a taxpayer disagrees with the decision of the Dispute Resolution Council, the taxpayer has the right to appeal to the court within 30 days after receiving the Council's decision. Additionally, a decision made by the Council can only be changed by a court. 

 

Authors: Enkhzaya Ganbaatar, Junior Associate

Bolormaa Volodya, Partner