Most businesses become nervous at the mere thought of a tax compliance inspection. These understandable fears are reinforced by the latest statistics. Compared to previous years, the number of inspections carried out in 2023 increased by more than 117 per cent. Moreover, their effectiveness remains extremely high, at 97-98 per cent, which means that almost every one of them ends with the detection of irregularities. Businesses must therefore face up to this new reality, and accuracy and transparency will be crucial if they want to avoid problems with the tax authorities.
The year 2024 – another year of tax inspections
The trend of increased tax compliance checks continues in 2024, and it looks like nothing is going to change for the time being. The tax authorities are stepping up their activities with a very specific goal in mind – to increase tax collection. In a situation where the state budget needs additional funds to finance anti-crisis measures and support the economy, every zloty counts.
In addition to the well-known areas on the tax authorities’ agenda, such as VAT or income tax, the activities of the customs and tax authorities aimed at importers of products from the Far East, such as China, India, Thailand or Malaysia, are also worth mentioning. Cross-border payments and the associated withholding taxes are also of interest to inspectors.
What can be done to protect against the consequences of a tax inspection?
Tax procedures are an important tool to protect against penalties resulting from a tax compliance inspection.
Their effective implementation can minimise the risk of potential liability for fiscal offences on the part of management board members or those holding the position of chief financial officer or chief accountant. We have written more about this liability here.
An example of such a safeguard can be the withholding tax due diligence procedure, which consists of establishing procedural rules for payments made to foreign entities, in particular for the purchase of intangible services or licences. By implementing appropriate mechanisms, it is possible to settle withholding tax in a stress-free and secure manner, taking advantage of reduced rates or exemptions provided for in the tax legislation.
Another good solution is the VAT due diligence procedure. The Ministry of Finance estimates that the VAT gap exceeded 15 per cent in 2023, so it is not surprising that the tax authorities are once again taking a closer look at the way in which businesses are settling this tax.
VAT – better safe than sorry
Setting up a proper oversight framework enables businesses to exercise the due diligence required by the authorities and thus avoid heavy penalties.
This is particularly true today, when there is a clear trend towards instrumental investigations aimed at proving that a given taxpayer has been actively involved in VAT carousel fraud. Such offences, in addition to the liability for tax arrears, also give rise to the liability of the management for fiscal offences.
The due diligence procedure should primarily focus on the verification of the business partner. And this should be done at several levels, paying particular attention to:
- The specifics of the sector
- The scale of the taxpayer’s activities
- The scale of the business partner’s activities
and provide for a number of safeguards.
In the event of a tax investigation, a well-designed procedure will make it possible to demonstrate that the taxpayer made all reasonable efforts and – if it turns out that there was some impropriety – they were unaware that they were involved in a tax offence.
Summary
In an era of ubiquitous tax compliance inspections, the implementation of an appropriate oversight framework appears to be critical to the safe operation of a business.
Due diligence procedures and standard operating procedures can minimise the risk of negative consequences of an inspection, such as tax arrears or interest. They also provide a kind of shield against the liability of managers for fiscal offences. This is particularly the case where managers are accused of unintentional involvement in carousel fraud.
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