What is the best reaction when a revenue authority arrives to carry out an inspection? There is no universal answer to this question. Everyone will act differently in case of a tax inspection. But it is good to know several principles the respecting of which cannot do any harm. I will mention three of them which I consider crucial.

1. According to the concept of the new legal regulation contained in the Tax Code, tax inspection is one of the so-called “procedures” within the so-called “tax proceedings”. Tax proceedings are a summary of procedures and partial proceedings leading to the correct ascertaining and determination of tax and to the ensuring of the tax payment. Tax administration in general is a procedure aimed at the correct ascertaining and determination of tax and at the ensuring of the tax payment. The basic definition of tax administration, which I quote intentionally, stipulates the principle of correct ascertaining and determination of tax. The previous Act on Administration of Taxes and Fees did not contain this principle. According to the Tax Code, a tax administrator is obliged to assess a tax in the correct amount, not in the amount most profitable for the state, i.e. the highest, as before. There is also case law in this respect. As a result thereof, both facts in favour of the state and facts in favour of the taxpayer must be reflected in all tax-administration proceedings and procedures. I point out this principle intentionally as it did not apply in the past and it has not become a routine in the actions of tax administrators. It is necessary to bear this principle in mind and know that where tax administrator's actions are not aimed at the correct assessment of tax, objections can be filed against the procedure on the basis of violation of the above-mentioned general principles of correct ascertaining and determination of tax. Another basic aspect is the fact that a tax inspection is the so-called procedure. “Procedure“ is derived from “to proceed”, where a tax administrator proceeds in accordance with law and cannot depart of the procedure stipulated by law. Therefore, it is good to know individual steps of the tax inspection procedure so that it is possible to complain about situations where a tax administrator fails to proceed in accordance with the rules laid down by law.
2. As the tax inspection is one of the procedures under tax administration, it is necessary to respect basic principles of tax administration as laid down by the Tax Code in any tax inspection. They are the following principles:

• principle of legality,
• principle of legal licence (a tax administrator may exercise its rights only for the purposes and in the extent and manner provided by law),
• principle of moderation and adequacy,
• principal of procedural equality,
• principle of cooperation,
• instructing principle,
• principle of helpfulness and politeness,
• principle of swiftness and economy,
• principle of free assessment of evidence,
• principle of legitimate expectations,
• principle of material truth,
• principle of non-publicity,
• principle of acting ex officio and inquisitional principle, and
• principle of collecting personal data.

The principles I briefly listed naturally apply both to taxpayers and tax administrators and one can insist that those principle are respected in the course of a tax inspection.

3. Course of a tax inspection

A tax inspection is a procedure and therefore, it must have an object and scope. It must be precisely specified what tax is subject to the inspection and for what period. A tax inspection must be commenced and terminated in a manner specified in the Tax Code (i.e. there are precise rules both with respect to its commencement and termination). A tax inspection may be repeated only in exceptional cases laid down by law. At the end of each tax inspection, a tax inspection report is prepared. The report is not discussed but the result of the inspection findings is subject to a discussion and its conclusions are recorded in the report. The report includes taxpayer's comments and within those comments, the taxpayer may raise objections. A tax inspection is an ongoing process during which the tax administrator checks the claimed facts, collects information, collects and assesses evidence, takes evidence, informs the taxpayer of its partial conclusions and obtains taxpayer's comments. Within this procedure, the tax administrator communicates with the taxpayer, informs the taxpayer of its partial conclusions and of the partial results of inspection findings, including assessment of evidence, and presents them to the taxpayer for comments. On the basis of those actions, it reaches final conclusions and informs the taxpayer of the conclusions. The taxpayer must present a complex opinion on its factual and legal assessment of the situation concerned and the taxpayer has the right to comment on this opinion, to propose its amendment and to suggest other evidence. Following the taxpayer's comments, the tax administrator prepares an official record that will become a part of the tax inspection report. Where the taxpayer does not agree with the inspection results, it may appeal against the decision based on the inspection (in practice, taxpayers most often appeal against decisions representing additional tax payment assessment with respect to the taxable period and tax inspected).

As I mentioned at the beginning, these are only the basic rules the following of which is suitable and beneficial in case of a tax inspection. If you wish to learn more, including practical advices, you are welcome to attend our educational Tutorial to be held at the seat of our company on 3 March 2016. Details are available at www.......