Legal Alert | The changing realities of tax audits - what an entrepreneur should know

New dominance of customs and tax inspections

Traditional tax inspections are gradually giving way to activities conducted by customs and tax offices. This change is not just statistical in nature - it also implies significant procedural differences. Customs and tax authorities have broader legal powers, including the ability to conduct activities without a set deadline and without the obligation to give prior notice to the party being audited.
For entrepreneurs, this means the risk of initiating an “audit” “by surprise,” without the possibility of correcting or improving statements in advance.

Almost every audit ends with a finding of deficiencies

Data from recent years indicate that the vast majority of audits end with some kind of irregularity. These range from serious issues - such as undocumented transactions - to minor, often disputed accounting items or technical errors. However, a high percentage of so-called “successful” audits does not necessarily mean that all findings are valid - many taxpayers choose to challenge them at further stages of the proceedings.

The duration of proceedings is getting noticeably longer

In practice, the length of ongoing audit activities increasingly exceeds the deadlines provided by the law - especially when the audit is initiated without prior notice. Business entities, especially in the SME sector, are increasingly burdened with lengthy proceedings, which not infrequently last several months and, in some cases, even more than a year. This directly affects the operational stability of the company and generates increasing indirect costs, such as the need to secure potential tax liabilities.

Freezing of assets already in the process of an audit - the growing practice of securing

Tax authorities are increasingly turning to tools that allow them to temporarily secure the assets of an entrepreneur even before the audit is completed. The issuance of such a decision is possible in case of suspicion that a tax liability may not be settled - however, in practice this premise is sometimes applied too broadly. The blocking of bank accounts, seizure of fixed assets or receivables can seriously disrupt the day-to-day operations of a business even before anything is formally resolved.

Areas of special interest to the tax authority

Most control activities are focused on VAT - which is not surprising, given its fiscal importance and the potential for interpretation errors. At the same time, more and more attention is being paid to entities engaged in cross-border transactions - both in the context of transfer pricing and withholding tax, dividends, royalties or group transfers.
In addition, organizational structures involving reorganizations, mergers, divisions or company transformations are becoming an increasingly frequent subject of analysis. Authorities are using increasingly sophisticated IT and analytical tools to type so-called “high-risk entities.”

What conclusions should entrepreneurs learn?

In the current realities of doing business, it should be standard not only to correctly settle accounts with the tax authorities, but also to have a strategy for dealing with audits. Practical measures should include, among others:

• implementing tax and compliance procedures,
• documenting significant tax and accounting decisions,
• regular internal audits of accounts,
• preparing staff to cooperate with audit authorities,
• knowledge of your legal rights during audits and tax proceedings.

A professional approach to relations with the tax administration should be an element of conscious risk management - especially for entities operating on a larger scale or operating in areas particularly vulnerable to the attention of the authorities.