In early August, Wiesław Jasiński, the Deputy Minister of Finance, presented a summary of the results of tax audits conducted in the first half of 2016. In line with previous announcements of the Ministry of Finance, the number of transfer pricing audits has increased significantly.
As the Deputy Minister of Finance Wiesław Jasiński announced, in the first half of 2016 the tax auditors issued decisions imposing more than PLN 9.5 billion in additional tax assessments. Compared to the previous year that represents an increase of 36.6 per cent. The Deputy Minister expects that by the end of 2016 this amount will have significantly exceeded PLN 20 billion.
The significant increase in the efficiency of tax audits comes from changes in the strategy pursued by the tax audit authorities. Based on tax audits carried out in the first half of 2016, it should be stated that the new strategy includes the following objectives:
In line with the earlier announcements of the Ministry of Finance, the number of transfer pricing audits has increased significantly. In the first half of 2016
the tax audit authorities initiated 222 inspections in the area of transfer pricing and tax optimization, i.e. 44 per cent more than the Ministry of Finance forecast in December of last year. 92 of the proceedings initiated in the first half of 2016 have already been completed, out of which 7 entities on a voluntary basis submitted corrections to the tax returns for the period not covered by the audits.
The transfer pricing audits carried out in the first half of 2016 resulted in assessment of additional tax liabilities for a total amount of PLN 60.5 million and reduction of PLN 440.7 million of losses declared by taxpayers.
Previously, tax audits concerned primarily the periods that would soon fall under the statute of limitations (e.g. tax liabilities for the year 2010 will fall under the statute of limitations on January 1st 2017). Currently, the tax authorities are initiating tax inspections also for the years 2014-2015 more frequently than before.
The increase in the number of audits of current settlements is most likely related to the implementation of the general anti-abuse rule (GAAR) in the Tax Ordinance Act. GAAR applies to tax benefits obtained after July 15th 2016.
Tax audits are conducted not only by the tax inspection authorities but also by the tax offices. These have increased their staff levels and implemented organizational changes and have improved cooperation with the state prosecutors. In addition, the tax offices have been equipped with advanced analytical tools, including professional databases used to verify the arm’s length nature of transactions between related parties.
The increased number of tax auditors equipped with more sophisticated audit tools means that the extent of transfer pricing audits can be expected to grow.
The greatest likelihood of a tax audit exists for loss-making entities or those having high debt ratios. The high-risk group also includes entities that were involved in restructuring processes, i.e. made transfers of economically important functions, assets or risks between related parties.
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