Tax audit and tax investigation – how do they differ?

What is a tax audit?

A tax audit is a specific form of inspection carried out by the tax authorities to verify whether a taxpayer is correctly fulfilling their tax obligations. The rules governing its conduct are set out in the Act of 29 August 1997 – Tax Ordinance (i.e. Journal of Laws of 2023, item 1415; hereinafter: Tax Ordinance) in Articles 281–292. Pursuant to Article 281 of that Act, the purpose of a tax audit is to verify compliance with obligations arising from tax law. When conducting an audit, the tax authority examines whether the audited party correctly accounts for its liabilities and fulfils its obligations by analysing accounting documents and tax returns, and, where necessary, by interviewing witnesses. The audit is intended to gather information that may form the basis for initiating tax proceedings. A tax audit is therefore of a preliminary (initial) nature, meaning that it is a stage preceding tax proceedings.

During a tax audit, the taxpayer is obliged to cooperate with the tax authorities, provide access to documentation and allow the auditors entry to the premises. It should be emphasised, however, that the auditing authority does not issue any decisions at this stage. Such decisions may only be made as part of tax proceedings, should the tax authority decide to initiate them following the conclusion of the audit.

What are tax proceedings?

Tax proceedings, governed by Articles 120–271 of the Tax Ordinance, aim to establish the existence and amount of a tax liability, as well as its assessment and enforcement. Unlike a tax audit, which is a preliminary stage, tax proceedings conclude with the tax authority issuing a decision. This decision specifies the amount of the tax liability and other obligations of the taxpayer, such as interest on arrears.

Tax proceedings usually commence after the conclusion of a tax audit, if the tax authority considers that there are grounds for issuing a tax decision. During the proceedings, the taxpayer has the right to defend their interests, for example by presenting evidence or providing explanations. It is also worth noting that the provisions of the Tax Ordinance regulate the principles governing tax proceedings. The most important of these principles is:

1. The principle of legality (Section 120 of the Tax Ordinance) – tax authorities act on the basis of and within the limits of the law. Every action taken by a tax authority during tax proceedings must have a basis in the law;
2. The principle of active participation of the parties to the proceedings (Section 123 of the Tax Ordinance) – tax authorities ensure the taxpayer’s right to active participation in the proceedings by allowing them to submit explanations, requests for evidence and to inspect the case files;
3. The principle of trust in tax authorities (Section 121(1) of the Tax Ordinance) – tax authorities should act in a manner that inspires trust in public authorities;
4. The principle of speed and simplicity (Section 125 of the Tax Ordinance) – tax proceedings should be conducted without undue delay, and actions taken by the tax authorities should be effective and focused on the objective of the proceedings.

Summary

Tax audits and tax proceedings, although interrelated, fulfil different functions within the tax law system. A tax audit is a preliminary stage aimed at gathering information, verifying compliance with obligations imposed by tax law, and collecting evidence. Tax proceedings, on the other hand, constitute the main process in which the tax authority issues a decision on the tax liability.

Author

Mateusz Sołkowicz

Associate

He specializes in tax law, focusing on the liability of taxpayers, payers and collectors, as well as issues related to income taxes and fiscal criminal law. Her master's thesis, defended at the Department of Financial Law at the University of Warsaw, dealt with tax and criminal liability for tax fraud in income taxes.

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