Tax procedures are the basis of any well-organized enterprise. They represent a tool to manage tax risks in your company. Tax procedures protect from penalties and ensure financial transparency. In this article, we will closely examine the different types of tax procedures. We will analyse their importance for the security and efficiency of your business.
Table of Contents
- Tax Procedures – What are They?
- VAT Due Diligence Procedure – A Foundation for Tax Compliance
- MDR procedure – Reporting Tax Schemes Without Secrets
- WHT Due Diligence Procedure – Withholding Tax Under Control
- Tax Policy – The Foundation of Effective Procedures
- Tax Procedures – Summary
- Frequently Asked Questions About Tax Procedures
Tax Procedures – What are They?
Tax procedures are rules and internal activities that allow a company to operate in compliance with tax laws. This is a tool to protect against financial penalties. Moreover, they support the daily functioning of the company. This helps to maintain transparency and order in documentation and tax settlements.
Every company, regardless of size or industry, should implement at least basic tax procedures.
| Examples of areas covered by tax procedures | |
| VAT | Verification of transactions in terms of value-added tax |
| WHT | Withholding tax procedures in international transactions |
| CIT | Corporate income tax returns |
| MDR | Reporting of tax schemes under current regulations |
Why is it worth implementing tax procedures?
- Reducing the risk of tax-related penalties.
- Improving relationships with business partners through transparent practices.
- Minimizing errors in tax settlements.
VAT Due Diligence Procedure – A Foundation for Tax Compliance
The VAT due diligence procedure is a key element of tax management in a company. Value Added Tax (VAT) is one of the most important areas of taxation in any company. Its incorrect settlement can lead to serious consequences. Negative implications include the loss of deduction rights, financial penalties, or criminal tax liability.
The VAT due diligence process involves several key steps:
- Verification of Contractors. Ensure your business partner is a registered VAT payer and does not appear on the list of entities deregistered by the tax authorities.
- Documentation control. Verify the compliance of invoices and other accounting documents with legal regulations.
- Transaction monitoring. Analyze each transaction for VAT compliance and ensure proper recording in relevant registers.
Benefits of implementing a VAT procedure:
- Reduced risk of involvement in VAT fraud schemes.
- Protection of the right to deduct input tax.
- Improved internal control within the company.
MDR procedure – Reporting Tax Schemes Without Secrets
MDR, or Mandatory Disclosure Rules, is a relatively new tax obligation. It obliges companies to report activities that could lead to tax optimization. The MDR procedure is particularly significant for businesses with complex financial operations. It also concerns those involved in international transactions.
What does the MDR procedure involve?
- Identifying Tax Schemes: Analyze the company’s activities to identify transactions that may qualify as tax schemes.
- Reporting Schemes: Report relevant actions to tax authorities within the specified timeframe.
- Maintaining Internal Records: Properly document all reported activities.
Benefits of implementing the MDR procedure:
- Building transparency in relations with tax authorities;
- Avoiding the risk of financial penalties;
- Increasing credibility in the eyes of contractors.
WHT Due Diligence Procedure – Withholding Tax Under Control
Withholding Tax (WHT) is one of the most demanding tax areas for companies engaged in international transactions. The WHT due diligence procedure helps minimize risks related to settlement errors. Moreover, it allows entrepreneurs to benefit from tax reliefs.
| Elements of the WHT Due Diligence Procedure | |
| Verification of contractor’s documentation | Make sure that the contractor has valid tax residence certificates. |
| Evaluation of the transactions | Each transaction should be analyzed in terms of requirements related to tax reliefs. |
| Document storage | Ensure that WHT-related documentation is properly archived. |
Why is the WHT procedure so important? Without proper measures, companies may be required to pay WHT even if the contractor qualifies for an exemption. The lack of a WHT procedure can lead to:
- additional financial costs;
- conflicts with contractors;
- sanctions for failure to comply with formal obligations.
Tax Policy – The Foundation of Effective Procedures
A tax policy is a key document that defines the general rules for managing tax obligations. It serves as the basis for all tax procedures. Tax policy allows companies to organise their operations and comply with regulations.
Elements of a tax policy:
- Defining the scope of tax obligations.
- Implementing systems for tax monitoring and reporting.
- Training employees on tax compliance.
Benefits of implementing a tax policy:
- Increased transparency in company operations.
- Improved relationships with tax authorities and business partners.
- Reduced risk of errors in tax settlements.
Tax Procedures – Summary
Tax procedures are an essential part of the effective financial management of a company. The implementation of due diligence procedures for VAT, MDR, WHT or CIT allows you to minimize tax risk. It improves the transparency of operations and builds a positive business reputation.
If you want to protect your company against tax risks, contact our experts. We will help you implement tax procedures tailored to the needs of your business.
Frequently Asked Questions About Tax Procedures
What are tax procedures?
Tax procedures are a set of actions and rules that help companies comply with tax laws.
What are the key tax procedures?
The most important are VAT, WHT, MDR and CIT procedures.
Is MDR reporting mandatory for every company?
MDR reporting applies to companies engaging in actions that meet tax scheme criteria.
What are the benefits of implementing the VAT procedure?
It ensures correct tax settlement and reduces the risk of sanctions.
Why is it worth implementing the WHT procedure?
To avoid errors in withholding tax settlements and to benefit from tax reliefs.
What is the difference between MDR and WHT?
MDR relates to reporting tax schemes, while WHT involves withholding tax compliance.
How much does it cost to implement tax procedures?
The cost depends on the size of the company and the scope of implementation, but it is an investment in the company’s security.
Are tax procedures mandatory?
Not always, but their absence may increase the penal and fiscal risk.
What are the consequences of not having tax procedures?
There are financial penalties, the risk of errors in settlements and the loss of the right to reliefs.
Who should be responsible for tax procedures?
Usually the accounting department in cooperation with a tax advisor.
