At the end of July 2010 an amendment to the Polish Fiscal Audit Act went into effect. Of particular interest is Art. 7c, which expands the obligations of businesses to provide information to tax inspectors.
Procedure for tax authorities to obtain information
For the fiscal audit authorities to require release of information, they do not have to start an audit proceeding first. The parliament has provided for a separate procedure.
A duty to provide information arises on the basis of an order by a fiscal audit authority specifying the date the information must be provided and in what form. Processing information in order to put it in the form required by the inspectors (such as a .pdf file) may requires a great amount of work on the part of businesses, and certain costs, but the act does not provide for any way to seek reimbursement.
In the justification for the order, the authority must indicate the circumstances that make it necessary to provide the information requested. This is very broadly worded and does not explain whether the authority must indicate circumstances showing that it cannot obtain the information in any other way, or that the information is necessary for the authority to carry out its statutory tasks.
An entity that is ordered to provide information will have a right to appeal to the Inspector General for Fiscal Audit. This raises the question of whether there will be any appeal, and to whom, if the order is issued by the inspector general? It appears that such an order will be subject to review by the administrative court.
Who must provide information
The obligation to provide information applies to legal persons, individuals conducting business activity, and organisational units without legal personality, including those that do not conduct business activity (e.g. associations). The group was thus broadly defined.
The act does not include a definition or cross-reference to a definition of “business activity,” raising the question of how to understand the term. There are two competing definitions: a narrow one, from the Business Freedom Act, and a broader one, from the Tax Ordinance. It would appear correct in this context to interpret “business activity” in line with the definition from the Business Freedom Act.
Scope of information
The information requested must be directly related to the occurrence of a taxable event or the amount of a tax obligation. The wording does not expressly require the fiscal audit authority to demonstrate this connection in the justification for the order.
Nor does the act specify the nature of these events, unlike, for example, Art. 82 of the Tax Ordinance. It should thus be assumed that it means any event, such as receiving income, conducting turnover, acquiring an asset, or incurring an expense, including economic events such as purchasing machinery or supplies for production, paying wages to employees, receiving orders or payment for goods, entering into agreements with employees, customers or suppliers, and so on.
The act also does not state whether the information requested should be directly related to the occurrence of a taxable event or the amount of a tax obligation on the part of the entity from whom the information is requested, or if the information may relate to events involving other persons which the entity receiving the request knows something about. The latter interpretation would require a person receiving a request to provide information about, for example, events occurring among its customers or suppliers.
If the recipient fails to provide the information requested, the fiscal audit authority may, by administrative decision, impose a fine on the recipient of up to PLN 5,000.
The new regulations provide fiscal audit authorities with broad access to information. In effect, inspectors will be able to obtain evidence comparable to that obtained during an audit proceeding, but the rights of the person requested to provide information are incomparably less. As a result, the audit proceeding as such may turn into a mere formality as the taxpayer is confronted with evidence that has already been collected. The extent to which the new regulation will be used will depend on the sector in which a business operates. It should be anticipated that the authorities will employ this new tool more often against businesses that serve as a kind of “information bank,” such as accounting firms. This aspect raises the issue of the relationship between the new rights of inspectors and the duty to maintain professional confidentiality and trade secrets, particularly when the authorities ask about events involving a business’s customers or suppliers.