Under the microscope

Companies will soon have to provide tax auditors with all financial data in a uniform file format. Is the business ready for the ERP revolution? By Beata Socha The Polish government’s propensity for increasing social spending has been widely discussed over the past few months, as has the question of where the money will come from. One of the principal methods the government has of bringing in extra cash to the state budget is to improve tax collection rates, particularly from entrepreneurs. That requires more efficient auditing, a task that is best performed with the use of computers. Starting in July, all large companies (employing 250 employees or more, and with annual revenues of €50 million and above/balance sheet total of €43 million or more) will have to prepare a Uniform Audit File (Polish: Jednolity Plik Kontrolny – JPK). They will have to submit the file upon request from a tax office. Small and medium-sized firms have two more years before they have to comply with the new regulation. A uniform file sounds fairly innocuous – but is it really? A fine toothed comb “It’s the most serious tax revolution since the VAT increase in 2010. It will be a widespread, and highly detailed, process, encompassing a lot of companies. Even unit prices in warehouses will be scrutinized,” said Piotr Ciski, managing director of Sage in Poland. [negative]Tax offices will be able to detect irregularities by comparing companies within the same industry.[/negative] The initiative is by no means an ad hoc measure. Tax offices have been preparing for the revolution for two years now, spending as much as PLN 55 million on new equipment, software and employee training. Not a small sum, but the prize could be 200 times bigger. “We believe that introducing JPK in Poland could result in a 13 percent increase in tax collection rates within three years. That would mean entrepreneurs will transfer a whopping PLN 15 billion extra into state coffers,” added Ciski. Not a new thing A uniform audit file itself is not a novelty: similar measures have been introduced in Portugal, France, Luxembourg, the Netherlands and Lithuania. “Our implementation will most resemble the one undertaken in Luxembourg,” explained Ciski, and added that “Portugal introduced a similar solution in 2012. In 2013, VAT revenue increased by 13 percent.” [caption id="attachment_94790" align="alignleft" width="300"] Image: Shutterstock[/caption] There is no doubt that the change will greatly increase the efficiency of Polish tax offices. “The use of electronic measures will definitely increase scrutiny and the scope of data that will be audited. Tax offices will be able to detect irregularities by comparing companies within the same industry,” explained Tomasz Ożdziński, executive director at EY’s Tax Division. He added that one of the challenges tax payers will have to face is “selecting the necessary data to meet their legal obligation on the one hand, but not disclosing all their trade secrets on the other. Companies may need consulting not only on the technical aspects, but also on the formal details,” he concluded. But even the technical hurdles themselves may not be that easy to overcome. According to Ciski, “generating an XML file is a simple enough task. However, searching through all the company’s systems for the required data could be a programming challenge,” he said, and added that ensuring data compatibility between different modules within one company (warehouse management, invoicing, accounting etc.) will be particularly difficult, especially if a company uses different providers. Ticking clock The biggest challenge, however, will be racing against time. Large companies have less than four months to implement the necessary changes. “The latest version was published on March 11, and that’s when the clock started for software producers. The scope of the reported data is relatively broad, and depending on how complicated the system is, adjusting it could take even several months,” explained Tomasz Tekieli, ERP system architect at Comarch, one of Poland’s top IT powerhouses. [negative]PLN 15 bln is how much more money will come in corporate taxes within two years after the uniform audit file is implemented.[/negative] The cost of implementing the changes will depend on what kind of software a company relies on. “Depending on the producer, software version and the number of modules the company uses, the update of the financial and accounting software could cost between PLN 3,000 and PLN 6,000 and if an upgrade is necessary – up to PLN 20,000,” said Ciski. The cloud advantage Those who use cloud-based software are lucky, because their updates will be made automatically. “Perhaps they will need to change their document registration processes, if the information they upload turns out to be insufficient to generate a JPK,” added Tekieli. Software as a Service (SaaS) has been slowly taking over the consumer-facing software market over the past few years (raise your hand if you use Office 365, a subscription-based office suite). It is now taking over the business-facing side as well. They are very competitive: cloud-based solutions are accessible 24/7 from any place with internet access, and they don’t require costly servers. “They also offer unlimited scalability, which is particularly important for rapidly growing companies,” said Tekieli. “In our economic environment, regulations change relatively often, which forces companies to pay for updated software versions. Cloud users don’t have to worry about it,” he added. Beware of hackers There is, however, one more aspect to consider, and perhaps even the most important of all: data security. Year on year, Polish companies have been spending more on improving their cybersecurity. In 2014, the market exceeded $300 million, according to IDC. But what’s the use of spending a small fortune on protecting your data from hackers if the tax offices that handle it are less diligent? There have been many high-profile data hacks involving banks and public institutions over the past few years, exposing their numerous weaknesses. According to PwC, the number of cybersecurity breaches in Poland increased by 46 percent last year. Once the Uniform Audit File is introduced, the number will go up even more. Handling so much sensitive data from so many market players, all in a uniform standard, will inevitably put an even larger target on tax institutions’ backs.