EY Tax Certification Program
New tax challenges
The state income and the taxation of businesses are a hot topic. As a consequence of the dynamics of changes and the development of new technologies, tax laws and the rules concerning the relations between the tax administration and taxpayers need to be redefined. Given these circumstances, maintaining tax security is a real challenge.
A Standard Audit File for Tax (SAF-T) is a new solution. With this file, taxpayers submit their financial data to the tax administration, which thus may access the information from the entire banking system at any time and publicly disclose the data of the biggest taxpayers. Development of additional solutions making tax settlements more convenient is thus crucial to maintain tax security.
What solutions do other countries use?
Turkey and Greece are a particularly interesting example, as the independent tax audit was initially a must, not an option there. Despite no longer being a mandatory requirement, independent tax audit is still a solution that is widely and willingly used by taxpayers to confirm the correctness of their tax settlements and procedures.
Greece and Turkey
They introduced a uniform standard of an audit performed on an on-going basis by independent entities.
The Netherlands and Russia
These countries introduced the horizontal monitoring (cooperative compliance) solution, i.e. changed the model of cooperation with taxpayers.
The country introduced official minimum procedure requirements that are to ensure personal security of taxpayers’ management boards.
Spain, Portugal, Hungary, France
These countries introduced uniform, standardised forms of tax reporting and their automatic verification (e.g. SAF-T, IDR, FEC).
How to safely verify tax data?
Based on the above-listed examples of other countries, the established expertise, and the long-term experience of our auditors, we decided to present the possibility to verify tax settlements based on the uniform audit standard we defined.
The scope of audit is modified exclusively with reference to the scale and the specificity of a company’s operations. A positive Certification Opinion is conditional on EY’s implementation of complete audit procedures in the scope defined by us, and on the unambiguous confirmation of the correctness of the settlements analysed.
The principles presented serve the implementation of the main idea of the EY Tax Certification Program, i.e. they help in increasing the certainty of business transactions and in building the trust between taxpayers and the tax administration, or among the very taxpayers.
Whom does the EY Tax Certification Program address?
who wish to secure the correctness of their tax processes and settlements and enjoy the comfort stemming therefrom.
which wish to have a real warranty of reliability of tax settlements that is useful when cooperating with contractors and in control processes.
that wish to feel safer with regards to their responsibility for tax settlements.
Benefits stemming from the participation in the EY Tax Certification Program
Reliability and trust in business transactions
Elimination of the penal and fiscal liability
Limitation of costs of tax errors
Optimum tax obligation
- The information about the amount of tax obligations of the biggest taxpayers is now public. However, it is difficult to disclose to the public the complete information about the difference between the tax income and the financial results in a particular period – although in certain case it would be justified to do so.
- The international experience shows that the independent standardised tax audit may be the source of information that is of importance to tax authorities (as regards the determination of tax inspection priorities).
- The reliability of a business partner and their tax settlements has become the key factor deciding on whether to cooperate with that business partner or not. The EY Tax Certification Program enables business partners and financial institutions to confirm the reliability of operations also in the area of taxes.
- The ever-changing tax laws and their interpretation make it difficult to prove that company’s tax has been settled with the observance of the due diligence principle. However, an audit performed by a third-party entity based on an independently developed methodology does constitute an important proof in that regard.
- New financial and tax reporting tools mean that audit needs to be conducted on an on-going basis; this is because directors and persons in charge of tax settlements are directly subject to penal liability and in many cases, once an error has been detected, there is no possibility to manage the liability (adjustment or active regret).
- Besides the penal and fiscal liability of the Management Board and persons in charge of tax settlements, where irregularities have been detected in tax settlements, a penalty may also be imposed on the company, based on regulations on liability of collective entities.
- Due to the application of punitive interest and tax rates, detection of irregularities in tax settlements (after the lapse of a certain period of time) results in the necessity to finance the arrears exceeding the very tax obligation. The on-going analysis of a tax obligation materially limits the risk of higher outflows on the part of the business.
- Despite the higher tax settlement-related risk, taxpayers are still obligated to determine tax obligations in the amount compliant with (and no greater than) what is legally permitted. Taxpayers may also choose the optimum tax settlement methods (depreciation/amortisation policy, exchange gains and losses). Moreover, the Ministry of Finance has been systematically extending the catalogue of possible and acceptable optimisation tools (e.g. R&D tax credits, positive spread investing (PSI), innovation box). Audits performed as part of the EY Tax Certification Program also aim at identifying the optimisation tools that may be used.
- Enhancement of effectiveness should probably also concern the very tax settlement process, particularly in view of the growing difficulties concerning the recruitment and maintenance of skilled personnel. Therefore, the audit indicates the possible simplifications of settlements made, ensuring at the same time correct calculation of the tax obligation.
Risk of penal fiscal liability
The number of changes and obligations imposed on taxpayers should make them introduce permanent and safe tax settlement methods. Particularly, because of severe sanctions imposed in the case of non-observance of procedures, and the failure to act with due diligence. The applicable laws provide for penalties and fines also for persons in charge of the tax settlement process.
The number of natural persons sentenced for tax irregularities based on the Penal Fiscal Code and the Penal Code is systematically growing, and in 2017 it totalled 10,000.
Both the directors of corporations and persons dealing with taxes at the management level may be sanctioned. The executives may be charged with the violation of tax laws if:
They affixed their signature under the tax return questioned.
They passed a resolution on financial or fiscal policy.
They made a decision regarding the fiscal operation questioned.
They signed a contract with a contractor questioned.
They have been continuing a tax settlement (loss deduction, continued depreciation/amortisation) introduced by former company executives.
They took no action after becoming aware of tax irregularities (e.g. in the course of a tax inspection).
Liability of Directors for proper formation of company’s tax processes.
The sanctions imposed mainly include fines (which in practice may amount up to several hundred thousand Polish zlotys), or in extreme cases – also imprisonment. Prohibition orders (prohibiting persons from performing a specified function or running a business) are also a severe sanction. Information about the valid sentence is entered in the National Penal Register and it may be publicly disclosed.
What is the EY Tax Standard?
The EY Tax Standard is a unified audit methodology for company tax settlements and tax procedures. The Standard was developed based on the international experience in certification programs and the long-term experience in analysis of tax settlements and financial audits of Polish businesses.
A characteristic feature of the Standard is its permanence. The audit is performed in accordance with the unified methodology, and the audit method is modified only with reference to the scale of operations of the given entity and its industry specificity (and not at the client’s individual request). The audit ends with an objective opinion on whether the company correctly settles its taxes, and whether its tax risk management methods respond to the present day challenges.
What does the EY Tax Standard include?
The work performed leads to the issuance of the Certification Opinion, which may either be positive, or indicate the areas and procedures that need to be verified. A business that underwent a complete audit and obtained a Certification Opinion may use the EY Tax Certification Program logo. Information about taxpayers that obtained a Certification Opinion will be published on the Program’s website. Should any irregularities be indicated at the time of audit, the Certification Opinion may include reservations, or it can be negative.
As not all business owners will be immediately ready to undergo a complete audit ending with the issuance of the Certification Opinion, we have provided them with the possibility to participate in the Program at different levels, each of which gradually covers a wider scope of analysis. Then, the analysis will end with the confirmation of participation in the Program. Upon completion of the audit performed as part of the EY Tax Certification Program, we will deliver complete documentation thereof.
What is the audit schedule?
The detailed audit schedule is tailored to the client’s individual needs and the Certification Level they selected; it also takes into consideration the availability of the client’s staff and resources. Audit may be performed after or before the end of the settlement period and the submission of the tax return. In the latter case, the audit is split into two phases: the initial phase and the validation phase.
EY Tax Certification Levels
We offer an audit of the correctness of tax settlements in the given year that is performed in keeping with the methodology tailored to the scale and the specificity of business operations. The procedures dedicated to each Certification Level are implemented in keeping with the uniform audit methodology – the EY Tax Standard. Taxpayers that are not ready to undergo a complete audit that authorises them to obtain a Certification Opinion may participate in the EY Tax Certification Program by having the audit performed to a limited extent (Levels 1 and 2).
The information about participation in the EY Tax Certification Program is the confirmation that the company has passed Level 1 and Level 2 audits. Audits of tax settlements as part of Levels 3, 4, 5 and 6 are summarised with a Certification Opinion. Additionally, where the Certification Opinion includes no reservations, the Program participant receives a written Certificate (and is allowed to use the Program logo).
PLEASE NOTE: The audit of tax settlements as part of the EY Tax Certification Program generally includes the verification of the SAF-T, as well as CIT, VAT and transfer pricing settlements. The remaining levies are not included in the audit due to their limited application that is impossible to standardise.
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EY Certification regarding the Withholding Tax
Due to a fundamental change in the settlement of the withholding tax (WHT), many business executives doubt whether they have met all the requirements regarding the application of new regulations, and exercised due diligence in the verification of the possibility to use tax exemption.
EY WHT certification (part of the EY Tax Certification Program) responds to the market demand and constitutes tax audit regarding the correctness of WHT settlements in the two following variants:
Certification of selected transactions
Analysis of the possibility to apply old rules (i.e. WHT exemptions or reduced WHT rates at the time of payment), including performance of tests of beneficial ownership of receivables (new definition) and the actual business activity.
Certification of transactions as regards the use of tax exemptions/ reduced rates for the purpose of the statutory Management Board statement obligation.
- Unambiguous information about the possibility to use tax exemptions or the reduced tax rate.
- Document being the basis for signing the Statement of the Management Board
- Due diligence exercised
- Transferring the burden of verification onto EY
Certification regarding the WHT policy implemented at the company
Analysis of the policy implemented and the procedures used regarding WHT settlements, including process and substantial verification of the principles of identification and qualification of transactions subject to WHT, and of the principles of contractors’ transactional status, for the application of tax exemptions and reduced tax rates.
Certification Opinion confirming the correctness of the WHT and transaction qualification policies in the light of new WHT rules.
- Substantial and process verification of the WHT settlement policies and procedures used
- Confirmation of the correctness as regards the WHT settlement methodology
- Minimisation of risks of personal and financial sanctions in the case of unsuitable verification procedures
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