Tax compliance is a procedure that involves fulfilling obligations regarding tax reporting. It aims to limit risk as much as possible. What does tax compliance involve? Why is it important? Why is it worth implementing tax compliance? What to do to make it effective? Find answers to these questions in our article below.
Table of Contents
- Tax compliance – what is it?
- Tax compliance – why is it important?
- Tax compliance – why is it worth implementing?
- Tax compliance – what to do to make it effective?
- Tax compliance – summary
Tax compliance – what is it?
In a literal sense, tax compliance refers to adhering to tax laws. This is a tax advisory procedure focusing on tax reporting and accounting. It aims to limit risks as much as possible.
What does tax reporting involve?
- Preparing declarations, reports, statements and information which a given entity is obliged to provide.
- Implementing procedures, standards, and processes aimed at ensuring due diligence and tax security.
Tax reporting concerns all obligations related to running a business. Not only those referring to taxes but also other fees and public law liabilities.
Tax compliance – why is it important?
Tax law is among the fastest and most dynamically evolving branches of law. Frequent amendments to regulations stem from changes in the economic environment. The legislator constantly tries to adapt to the changing market. This requires also a limitation of potential tax loopholes. It is important to bear in mind globalisation which has its economic consequences too. More and more entrepreneurs decide to conduct business in an international environment. Such a possibility may encourage circumvention of the law.
Therefore, it is becoming increasingly important to be up to date with changes. The proper implementation of obligations provided for in national and international law is crucial.
Tax compliance – why is it worth implementing?
- Tax compliance ensures tax security and minimizes associated risks for businesses. Additionally, it protects from both financial and non-financial penalties.
- Tax compliance is a preventive measure. It enables ongoing monitoring and control of all processes within the enterprise. It allows for a quick response to any irregularities. Moreover, it helps to minimize risk by implementing appropriate preventive measures.
- Tax compliance ensures that you avoid making a similar mistake in the future. It provides constant supervision over changing tax laws and the functioning system.
Tax compliance – what to do to make it effective?
Tax reporting is closely related to many departments operating within a company. It concerns HR, IT, customer service, suppliers, and warehouse management. It applies to all strategic areas of business operations.
Tax compliance is effective when properly implemented. Its implementation involves:
- analyzing all processes occurring within the company,
- analyzing the capabilities of the financial-accounting system,
- documenting best practices applied by the company,
- implementing processes and procedures related to internal audit and control, concerning the management of obligations arising from tax laws, as well as ensuring their proper execution in all compliance areas.
Tax compliance goals may vary based on the type of business and transactions performed. Yet, determining these goals is extremely important for proper implementation. It is also necessary to identify internal and external circumstances, that may generate risks in the compliance area.
Tax reporting procedures should be tailored to each specific company and documented. The company should ensure that employees are properly trained in this area. Such a system is individually customized for each entity.
Tax compliance – summary
Tax compliance includes elements of control, tax advisory, and accounting. As a result, it achieves high effectiveness in the applied procedure. Without a tax reporting system, you may face the need to pay overdue taxes or even criminal tax liability.
If you find this topic interesting and want to know more about it, contact us today. Experts from our law firm in Łódź are ready to help you.
