Information is the “fons et origo” of taxation. The end point is to determine taxable income. Anything that should be included in taxable income, and that is not, is what generates penalties, interest and sometimes criminal sanctions for taxpayers.

In order to determine taxable income the process starts at the top of an inverted triangle, moving down to the apex, the final determination of taxable income, in the following order, and from the following data sources:

• third-party data;
• transactional data;
• correspondence, business records, minutes;
• journal entries, ledger accounts;
• trial balances, balance sheets, profit and loss accounts;
• net profit and income tax adjustment accounts;
• arriving at taxable income.

Most tax compliance preparation only commences at “journal entries” in moving down to the apex. Third-party data, transactional data, correspondence, business records and minutes are usually ignored in the main - unless a tax audit has commenced with a demand made for these records. It is for this reason that Deloitte in an international survey came to the conclusion that only up to 40% of tax risk is exposed in usual tax compliance activities. The other 60% is hidden above the journal entries line of the inverted apex, and exposed through the TAX RADAR™ program...

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