What is the difference between expanded-review filing and actual-basis filing? What happens in a tax audit?

Every year when we prepare the annual return, we evaluate free of charge whether "expanded review / income filing" or "actual-basis filing" saves more tax, and analyze the risk; if actual basis is better, we notify you to confirm and charge the difference in service fee per the quotation.

Expanded review / income filing: if selected for audit, ledgers are not submitted; the tax bureau assesses tax based on the "industry profit standard net profit rate" for your industry code.

Actual-basis filing: if audited, ledgers must be submitted, in one of two ways:

• Direct cost determination: gross margin must be at or above the industry standard gross margin and expenses must be sufficient (costs are not examined, only expenses).
• Inventory method: cost analysis is required, with purchases and sales matched item by item.

"Costs" are expenses directly related to selling goods or services (purchases, service fees, etc.); "expenses" are indirectly related (rent, salaries, transport, advertising, overheads, etc.).

Our filings are based on the invoices and documents you provide; we do not audit cash flows, do project cost analysis or reconcile inventory details, so corporate income tax is mainly filed under "expanded review / income filing" or "actual basis with direct cost determination". If an investor requires cash-flow review or project cost analysis, discuss the right approach with us first. Whichever method is used, if an audit comes we help communicate with the tax bureau and prepare the materials.