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The primary goal behind tax audits is to verify whether taxpayers correctly perform their duties arising under applicable tax law provisions. Thus, settlements made by taxpayers are scrutinized and if tax authorities find that the taxpayer has failed to fulfil their obligations, steps are taken to verify the declared tax amounts.

Authors:
Wojciech Majkowski, Director, Corporate Tax Advisory
Oskar Wala, Manager, Corporate Tax Advisory

In principle, the audits carried out by the authorities focus on particular performance areas, covering general aspects, but also complex considerations related to fulfilment of tax duties. In fact, particular focus is placed on all types of reorganizing and restructuring proceedings, which are often perceived as a tool for achieving beneficial tax consequences or unjustified savings. Special attention is also paid to controlled transactions. Furthermore, tax dealings are often tested against the General anti-avoidance rule and 'minor anti-avoidance clauses', which may be used by tax authorities to challenge tax neutrality of transactions carried out by taxpayers, such as mergers lacking economic grounds. Therefore, with experience gained by the tax authorities, the audits performed are getting more specialized and subject specific.

Inspections, tax and court proceedings in the times of COVID-19

Clearly, 2020 has been exceptional, because of the COVID-19 pandemic and the constraints it imposed, also on tax authorities, forcing them to adopt remote and digital ways of working. For instance, Anti-Crisis Shield 4.0. introduced an additional provision, under which, with the consent of the entrepreneur, a tax audit or individual control activities may be performed by the authority remotely, e.g. by means of electronic communication. Due to the COVID-19 outbreak and the limitations it placed on the tax authorities' activities, a raft of tax reliefs consisting in spreading liabilities into instalments or deferring tax payments was put in place. It should be noted, however, that the context and terms of application of some aid schemes may in the future be subject to tax inspections, in particular against the legitimacy of granting the support.

Topics and scope of tax audits

Apart from adjusting the scope of audits carried out, the Ministry of Finance also undertakes activities aimed at increasing the transparency of taxpayers. Hence, in addition to the obligation to submit SAF-T files and MDR reports, which has been in place for some time, the largest taxpayers will now be required to submit a report on the executed tax strategy. Additionally, the National Revenue Administration implements the so-called "cooperation program" aimed at the largest taxpayers and relying on the transparency principles. All the amendments have the same goal, i.e. improving transparency of tax settlements made by businesses, so that the tax authorities are kept up to date with the most relevant, settlement-related information.

Having said all of that, one should keep in mind that the simplest way to successful completion of a tax audit is to be thoroughly prepared. Even at the stage of performing a transaction, the taxpayer may use the assistance of advisors, as well as examine the applicable provisions and rulings, so that the tax consequences thereof are properly considered. In particular, it is possible to apply for an individual ruling securing the taxpayers against their tax settlement being challenged in the future. Once the auditing proceedings are launched, the taxpayer should try to identify the issues of interest to the authority and explain, by all evidence available, that the settlements are correct. All these actions combined should prevent tax settlements from being challenged, and even if the auditing activities eventually end in a dispute and the taxpayer is required to pay the tax arrears, they will not be found guilty of a fiscal crime.

One may only wonder what the next year is to bring. There is little doubt that the first half of the year will pass in the shadow of the coronavirus, which will surely further impact the activities of tax authorities. Eventually, however, the pandemic will be contained, which in turn may translate into intensified auditing proceedings.


 

Undoubtedly, subsequent amendments to the existing auditing provisions are to follow. In particular, there have been many voices for introducing the solution commonly referred to as "evidence preclusion clause" into the tax proceedings. This means that at an early stage of a tax audit or proceedings, the taxpayer will be required to demonstrate all facts and evidence in their possession to support the existence of certain circumstances. If the taxpayer fails to comply with the evidence preclusion obligation, the tax authority will not be obliged to consider and take into account the evidence and facts presented by the taxpayer at a later stage, unless the taxpayer proves that they are not at fault for failure to submit the evidence in the time due. In other words, it may happen that the tax authorities would ignore the evidence favourable to the taxpayer and issue a decision without taking it into account, if such evidence is submitted past the deadline. The aim of the solution is to encourage taxpayers for even more effective cooperation with the tax authorities.