How will the tax authorities’ procedure for tax audits change from the new year?

We keep you informed of changes that will take place with the amendment to the Tax Code with effect from 1 January 2021. In this post, we will draw your attention to the most important changes upon the commencement and termination of a tax audit.

Commencement of a tax audit

While the current legislation is based on the personal meeting of the tax administrator and the taxpayer, the amendment to the Tax Code allows the tax administrator to commence a tax audit in writing without a physical presence of the taxpayer. In practical terms, it will therefore mean that, if the tax administrator chooses the written form, they will send a notification of the initiation of the tax audit to the taxpayer’s data box, upon the delivery of which the tax audit is commenced.

The taxpayer may become aware of the tax administrator’s intention to commence a tax audit and its subject matter for the first time upon receiving the notification, when the tax audit has been already commenced. If the taxpayer has previously submitted a power of attorney to the tax administrator whose extent may also be applied to the tax audit, the tax administrator will deliver the notice of initiation of the tax audit to the representative.

Termination of a tax audit

On the basis of the tax audit carried out, the tax administrator writes the result of the audit findings to date, which they communicate to the taxpayer and set a reasonable time limit for their response. The communication of the result of the audit findings to date will also now be the moment when the tax administrator must make available to the taxpayer all the evidence produced in the tax audit, including the non-public part of the file.

The tax audit will now be terminated upon the delivery of a notification of tax audit termination, with an appendix containing the tax audit report. The amendment to the Tax Code therefore allows terminating the tax audit in writing, instead of a meeting in person and signing the tax audit report, which has been the case until now. Together with the notification of tax audit termination, the tax administrator may also deliver a ruling on tax assessment.

What should you be aware of?

The new rules substantially simplify the tax administrator’s process of initiating and terminating a tax audit, which can bring not only an acceleration of the tax administrator’s processes, but also a moment of surprise for the audited taxpayer. It is therefore desirable to begin preparing for these changes now and to set up internal processes within the company appropriately. Above all, to revise the powers of attorney still in force deposited with the tax administrator, or work with the data box.

Although the amendment to the Tax Code allows for commencement and termination of a tax audit in writing, it will still be possible for the tax administrator to deliver the notice of initiation of the tax audit during a personal meeting. Therefore, it may be a good solution to indicate in advance to the tax administrator what method of communication with the tax administrator the taxpayer prefers with respect to a tax audit, as well as to communicate to them the correct contact persons.

The tax administration is currently preparing a methodological instruction for the conduct of tax audits, which should include, inter alia, guidance on how to deliver the notifications and terminate the tax audit. We continue to monitor the issue and keep you informed of further developments.

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