Audit Redux
The traffic grinds to a halt, the children start school, and new autumn schedules reflect more options and more activity just about everywhere. Suddenly, everything around us seems to be screaming: "Back to business!"
As my ex-boss and former WBJ tax columnist would say, "the time has come for a work break." So in this issue of the WBJ, the Tax Eye's reluctant farewell to casual Fridays is dedicated to the ever so serious topic of tax audits.
Audit stereotypes When I think of a tax audit, the first thing that pops into my mind is a photo I once saw-in print-of a notorious tax evader forced to the ground by two armed and masked representatives of the Russian tax police. The newspapers claimed that the guy had consistently failed to pay his taxes. (For the record, he was not an employee or a shareholder of Yukos or its subsidiary Yuganskneftegaz, which is presently being sold at a 90 percent discount to cover a multi-billion dollar claim for back taxes.)
Although the Polish reality of fiscal law enforcement is slightly different-arguably because the delinquents over here are more timid when it comes to tax evasion-some Polish tax inspectors are actually allowed to use physical force and firearms in control proceedings.
Regardless of whether or not you have something to hide, you will undoubtedly be better off if you let your tax advisor know about an upcoming audit. There is plenty of inconspicuous procedural detail that can go undetected, only to end up costing you precious time and maybe burning a big hole in your pocket.
With that in mind, legislators recently came up with a few changes that should ease the suffering of audited taxpayers. These concern, among other things, two key aspects of tax audits: their concurrence and their duration.
Saving trees Until now, it was possible for a taxpayer to be subject to two inspections carried out by two different offices simultaneously-as with transfer pricing and personal income tax. Pursuant to the amended regulations, inspection proceedings can still accommodate specific tax inspections, but only one at a time.
This is very exciting news for the humble taxpayer. It means less time wasted on printing out endless T-account reconciliation statements for that aging tax inspector sipping free coffee in your only conference room. (And she's in no hurry.)
Ideally, it will no longer be possible for two groups of tax inspectors (one from the US-Urząd Skarbowy; the other from the UKS-Urząd Kontroli Skarbowej) auditing the same tax documentation (e.g. on corporate tax due for 2000) to come up with different or even contradictory findings and, consequently, with incongruent tax assessments.
Time's up Regarding the timing of audits, the legislators introduced the revolutionary idea of limiting the duration of inspections. Up to now, tax authorities were not bound in real terms by any effective time restrictions for carrying out tax audits. Under the new regulations, all tax inspections carried out at small- and medium-sized businesses can take, cumulatively, up to four weeks total per annum. This duration is capped at eight weeks for all other taxpayers.
There are, however, a number of exceptions to the above general rule. For instance, the said limitations do not apply to 'cross-inspections'-those instigated to confirm certain facts about a third party (e.g. customer, supplier, etc.) undergoing a tax audit. Such inspections are the ones often associated with a VAT refund claim.
Another exception relates to the 'repeat' tax inspection, which can be initiated without taking into account the cumulative annual limit, provided that in the course of a prior inspection the taxpayer is found to have committed a gross violation of the law. Taken to the extreme, the application of this rule may lead tax authorities to charge taxpayers with gross violation in order to revisit prior years which had already been audited.
On a more positive note, the new limitations introduced on the duration and concurrence of inspections will probably translate into time and money saved for taxpayers. Let's hope that auditors start utilizing their time on company turf much more efficiently.
In reality, what this means is that most of the review is now likely to be performed by the tax authorities on their own premises rather than in the taxpayer's conference room. And although at first glance this might sound like good news, some tax practitioners are more skeptical: They speculate that now the taxpayer will have to incur losses in travel time to compensate for the auditor's absence whenever the need for additional documents and new information arises in the course of an inspection.
Efficiency first In the course of setting the new rules for the concurrence and duration of tax audits, the legislators have managed to foresee the potential practical difficulties associated with keeping track of the related restrictions within a calendar year. Hence the logbook of inspections which all taxpayers are now required to maintain-just one of the tools introduced to facilitate the new tax control proceedings. The logbook will contain all of the information about each taxpayer's inspections, including all documents and communication between the tax authorities and the taxpayer concerning post-inspection implementation activities.
The recent legislative changes aim to make tax audits more efficient for the benefit of both the taxpayer and the Tax Man. Taxpayer rights have been further strengthened by the new provisions on tax rulings. These will be discussed in future issues of Tax Eye. Stay tuned.
As my ex-boss and former WBJ tax columnist would say, "the time has come for a work break." So in this issue of the WBJ, the Tax Eye's reluctant farewell to casual Fridays is dedicated to the ever so serious topic of tax audits.
Audit stereotypes When I think of a tax audit, the first thing that pops into my mind is a photo I once saw-in print-of a notorious tax evader forced to the ground by two armed and masked representatives of the Russian tax police. The newspapers claimed that the guy had consistently failed to pay his taxes. (For the record, he was not an employee or a shareholder of Yukos or its subsidiary Yuganskneftegaz, which is presently being sold at a 90 percent discount to cover a multi-billion dollar claim for back taxes.)
Although the Polish reality of fiscal law enforcement is slightly different-arguably because the delinquents over here are more timid when it comes to tax evasion-some Polish tax inspectors are actually allowed to use physical force and firearms in control proceedings.
Regardless of whether or not you have something to hide, you will undoubtedly be better off if you let your tax advisor know about an upcoming audit. There is plenty of inconspicuous procedural detail that can go undetected, only to end up costing you precious time and maybe burning a big hole in your pocket.
With that in mind, legislators recently came up with a few changes that should ease the suffering of audited taxpayers. These concern, among other things, two key aspects of tax audits: their concurrence and their duration.
Saving trees Until now, it was possible for a taxpayer to be subject to two inspections carried out by two different offices simultaneously-as with transfer pricing and personal income tax. Pursuant to the amended regulations, inspection proceedings can still accommodate specific tax inspections, but only one at a time.
This is very exciting news for the humble taxpayer. It means less time wasted on printing out endless T-account reconciliation statements for that aging tax inspector sipping free coffee in your only conference room. (And she's in no hurry.)
Ideally, it will no longer be possible for two groups of tax inspectors (one from the US-Urząd Skarbowy; the other from the UKS-Urząd Kontroli Skarbowej) auditing the same tax documentation (e.g. on corporate tax due for 2000) to come up with different or even contradictory findings and, consequently, with incongruent tax assessments.
Time's up Regarding the timing of audits, the legislators introduced the revolutionary idea of limiting the duration of inspections. Up to now, tax authorities were not bound in real terms by any effective time restrictions for carrying out tax audits. Under the new regulations, all tax inspections carried out at small- and medium-sized businesses can take, cumulatively, up to four weeks total per annum. This duration is capped at eight weeks for all other taxpayers.
There are, however, a number of exceptions to the above general rule. For instance, the said limitations do not apply to 'cross-inspections'-those instigated to confirm certain facts about a third party (e.g. customer, supplier, etc.) undergoing a tax audit. Such inspections are the ones often associated with a VAT refund claim.
Another exception relates to the 'repeat' tax inspection, which can be initiated without taking into account the cumulative annual limit, provided that in the course of a prior inspection the taxpayer is found to have committed a gross violation of the law. Taken to the extreme, the application of this rule may lead tax authorities to charge taxpayers with gross violation in order to revisit prior years which had already been audited.
On a more positive note, the new limitations introduced on the duration and concurrence of inspections will probably translate into time and money saved for taxpayers. Let's hope that auditors start utilizing their time on company turf much more efficiently.
In reality, what this means is that most of the review is now likely to be performed by the tax authorities on their own premises rather than in the taxpayer's conference room. And although at first glance this might sound like good news, some tax practitioners are more skeptical: They speculate that now the taxpayer will have to incur losses in travel time to compensate for the auditor's absence whenever the need for additional documents and new information arises in the course of an inspection.
Efficiency first In the course of setting the new rules for the concurrence and duration of tax audits, the legislators have managed to foresee the potential practical difficulties associated with keeping track of the related restrictions within a calendar year. Hence the logbook of inspections which all taxpayers are now required to maintain-just one of the tools introduced to facilitate the new tax control proceedings. The logbook will contain all of the information about each taxpayer's inspections, including all documents and communication between the tax authorities and the taxpayer concerning post-inspection implementation activities.
The recent legislative changes aim to make tax audits more efficient for the benefit of both the taxpayer and the Tax Man. Taxpayer rights have been further strengthened by the new provisions on tax rulings. These will be discussed in future issues of Tax Eye. Stay tuned.
