11 June 2024

Tax audit – how to effectively prepare a company?

Preparing for a tax audit is a key step in ensuring the financial stability and security of a company. Conducting a tax audit is aimed not only at identifying potential errors or deficiencies in tax settlements but also at optimizing the company’s tax structure. Attention to the accuracy of the documentation and the support of experts allows you to avoid misunderstandings, mistakes, and potential financial consequences.

Tax audit – assumptions, contractor

The head of the National Tax Administration may order a tax audit of a taxpayer both before the signing of the cooperation agreement (preliminary audit) and during its term (monitoring audit), to assess the correct implementation of tax obligations and the effectiveness and adequacy of the internal tax supervision system.

A tax audit may occur after the signing of the cooperation agreement between the tax authority and the company to be audited.

The taxpayer is obliged to provide, at the request of the Head of KAS (in polish: Krajowa Administracja Skarbowa), the documents and information necessary to conduct a tax audit. The date and shape of the audit shall be agreed directly with the taxpayer. The preliminary audit may cover the 2 tax years preceding the year the taxpayer requested the signing of the cooperation agreement.

Necessary preparatory steps

Preparations for a financial control should begin with a thorough review and organization of all financial and tax documents. It is crucial to ensure that all documents (invoices, contracts, tax returns, and other relevant documents) are organized and easily accessible to the auditor.

A precise analysis of the documentation is therefore essential. First and foremost, it is necessary to verify that all tax returns have been properly completed and filed on time. Accounting records should be confronted with source documents (invoices, contracts). It is also necessary to verify the correct allocation of costs and revenues to the appropriate tax categories.

Document analysis often leads to the discovery of missing documents. An important step is to update, i.e., add or locate on disk the missing evidence that will certainly be referred to during the audit.

Next, it is worth locating potential risks. This means, more or less, that certain more complicated financial operations undertaken by the company may appear unclear and incorrect at first glance to the auditor. Make sure that any operation supported by a financial document can be clearly explained without the need to undertake additional research.

It is also a good idea to have specialists in finance and tax law on hand. An in-house tax advisor is the best way to go, although it’s also a good idea to have external advisors perform the initial analysis.

When to conduct a tax audit?

A tax audit is conducted in specific situations, including:

1. Regularly as part of a review, when a company decides on its own to initiate periodic audits to ensure that their operations comply with current regulations. This is a popular preventive measure to avoid problems during a control. A company deciding to take this step usually establishes a partnership with an independent auditor.
2. Companies planning large transactions, such as mergers, acquisitions, or reorganizations, often conduct a tax audit before executing the transaction to minimize tax risks.
3. In the form of a tax audit commissioned by the Head of KAS. If a company has been selected for a financial control by the tax authorities, conducting it in advance can help identify potential problems and prepare for possible questions and demands.

Results of the audit

From the conducted control, the Head of KAS draws up an appropriate opinion. It may be positive, negative, or may take the form of a recommendation indicating, with justification, what actions the taxpayer should take to rectify the irregularities identified in this audit, with justification.