Tax audit is one of the tools of tax risk management - its purpose is to verify whether a given entity correctly applies the provisions of tax law and recognises transactions in appropriate settlement periods. A well conducted tax audit makes it possible, first of all, to identify areas of potential tax risks and incorrect settlements and to estimate potential negative financial consequences for a company and its management.
A tax audit also helps to identify areas for tax savings.
A tax audit may address the following areas:
- Corporate Income Tax (CIT)
- Personal Income Tax (PIT)
- VAT
- Tax on civil law transactions (PCC)
- Property tax
- Excise duties
- Tax schemes
Tax audit – risk management
During tax audit we put particular emphasis on the most vulnerable areas susceptible to dynamic changes in tax law and new interpretations issued by tax authorities.
Our tax audit includes an evaluation of the company's source documentation in selected areas for the correctness of tax settlements.
Tax audit - report
Tax audit involves a random analysis of selected source documentation (e.g. books of accounts, invoices, records, declarations and trade agreements) and verification of the company's internal policies.
The result of the tax audit is a report summarizing the identified irregularities and risk areas including practical ways of their elimination as well as recommendations on how to mitigate these risks in the future.
The list of corrective actions includes necessary modifications and supplements to the documentation.
The most frequently identified tax risks:
- Tax schemes reporting (MDR) - failure to identify and report a scheme is subject to a fine of up to PLN 21.6 million.
- Irregularities concerning the amount of declarations and timeliness of advance payments - failure to disclose the object or tax base to the competent tax authority or failure to submit the declaration within the deadline is subject to a fine of up to 720 daily rates (up to over PLN 34 million) or imprisonment, or both.
- Tax strategy information - failure to comply with the obligation to prepare a tax strategy is subject to a fine of up to PLN 250 000.
- Withholding tax - eligibility for an exemption or reduced rate requires the fulfilment of certain formal conditions. If these are not met, the taxpayer may be charged a higher tax rate.
- Fines for non-compliance with the obligation to notify or update the information on the beneficial owner - entities that have not complied with the obligation to notify or update the information on the beneficial owner within the deadline indicated in the Act are subject to a fine of up to PLN 1 000 000.
- Estonian CIT - failure to meet the requirements for Estonian CIT taxation and incorrect recognition of hidden non-business profits and expenses can result in tax arrears and high interest rates (learn more: Hidden profits in Estonian CIT - doubts increasing).
- Bad debt relief and the Anti-Corruption Act - the fiscal burden of unpaid invoices is transferred to the debtor, and adjustments must be made to the tax base in VAT and CIT if invoices are not paid. The use of bad debt relief is most often the object of checking activities.
- Risk of transfer pricing irregularities - sanctions for failure to comply with obligations to prepare transfer pricing documentation can amount to up to 720 daily rates, i.e. up to over PLN 34 million.
- Tax on income from undisclosed sources of revenue - the tax authority may impose a tax at 75% of the sanction rate (income) on income from undisclosed sources of revenue or sources not covered by disclosed sources.
- White list of VAT payers - payment for a specific value transaction to the contractor's account, which is not included in the so-called "white list", results in the exclusion of this expenditure from tax deductible costs. Moreover, the purchaser will answer jointly and severally with the seller if the seller does not settle the VAT on this transaction.
- Cross-border transactions (chain and trilateral transactions) - incorrect classification of supplies within a chain of transactions leads to tax arrears, interest and sanctions.
- JPK_VAT and GTU codes - the head of the tax office may impose a fine of PLN 500 on the taxpayer for each error in the records sent.
- Split payment - payment without the split payment mechanism means no right to include the incurred expenditure in tax costs and an additional sanction of 30% of VAT indicated on the invoice; possible liability in the form of a fine up to PLN 21.6 million.
- VAT sanctions - the tax authority may, upon detection of irregularities, set a sanction of up to 30%, up to 20% or up to 15% of the amount of the understatement of tax liability, of the amount of the overstatement of the tax difference refund, of the tax difference to reduce the tax due for subsequent settlement periods or of 100% of the tax calculated in the invoice.
- Fines for lack of PCC-3 - failure to comply with the obligation to submit a return and pay the tax on civil law transactions is punishable by a fine of PLN 360 to PLN 72 000.
