The federal tax authority can exercise its inspection powers at its discretion. The tax authority has in place risk analyses that determine the need for an inspection, although exceptionally a tax official can order a tax inspection if he or she considers it necessary.
A federal tax inspection can take several forms; the most common are an inspection at the taxpayer's domicile, a written review or an electronic review. The tax authority's head office performs a written review, while the field offices perform inspections at the taxpayer's domicile. Electronic reviews are used almost exclusively when an issue has been identified and the tax authority considers that a tax deficiency clearly exists and the inspection is simply a formality.
Reaching a settlement directly with the tax authority in the case of a dispute is not explicitly regulated, although no prohibition exists and thus, settlements are in fact reached when an inspection is being performed. Before a tax assessment is determined, taxpayers can opt to begin a settlement agreement procedure before the Federal Taxpayers' Advocate (PRODECON). PRODECON serves as a mediator4 and the process allows taxpayers to totally or partially settle the case, as well as to submit evidence that was not submitted during the inspection proceedings. Tax refunds cannot be settled, and thus, a refund is either totally or partially granted or not at all based on the tax authority's findings.
A taxpayer can challenge a tax assessment or a total or partial refund denial through either an administrative appeal or an annulment claim, both of which are described in the following section.