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The Warsaw Voice » Law » June 25, 2008
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Beware of Tax Pitfalls
June 25, 2008 By Beata Gołębiewska   
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Tax consultants from the TPA Horwath Polska company held a press conference at Warsaw's Hilton Hotel June 10 to brief journalists on typical pitfalls that await foreign businesspeople in the Polish tax system.

The conference aimed to help foreign companies operating in Poland become more aware of Polish tax law. TPA Horwath Polska is the Polish subsidiary of one of the largest consulting firms in Europe and part of the Horwath International network.

The tax experts identified many superfluous procedures and formal obligations in Polish tax regulations, and they also talked about the "facts and myths" of the flat tax system.

"A characteristic feature of the Polish income tax system is a rigorous approach to documenting various business events and strict procedures that need to be followed to determine the actual state of affairs," said Krzysztof Kaczmarek, a tax adviser and managing partner at TPA Horwath. "Invoices are virtually indispensable, and what is more, tax authorities require every source document to be described in detail so as to prove its relation to taxable income in cause-and-effect terms. Clearly, it would be much more reasonable to adopt uncomplicated cost-settling procedures, even at the expense of a higher nominal tax rate."

Many tax pitfalls are hidden in formal requirements and tight deadlines, the number of which increases with each year, TPA Horwath says. For example, individuals wanting to be subject to a 19-percent flat tax rate must notify the internal revenue service about it in writing by Jan. 20 every year, or a day prior to launching their business. A delay by just one day makes it impossible for the taxpayer to take advantage of this preferential form of taxation, the company said.

"Similar requirements are found in the choice of the method to calculate exchange rate differences, as well as in the VAT settlement method and many other privileges that taxpayers are theoretically allowed to use," said Wojciech Sztuba, another tax adviser and managing partner at TPA Horwath. "In practice, the privileges are not used too often due to overly complicated and unnecessary procedures that have been scrapped in other countries. This deprives many taxpayers of the possibility to benefit from these privileges."

Both Kaczmarek and Sztuba agreed that, while a flat tax rate was not a perfect solution, it could be a good idea for countries such as Poland, which are transforming their economies while giving priority to rapid economic growth. The flat tax system is based on a single tax rate that is low enough to enable taxpayers to increase their incomes and reinvest them, the two experts said, adding that a flat tax rate also helps reduce the unregistered, tax-evading segment of the economy. This explains why the flat tax system has been introduced in almost all the countries of the former Eastern bloc that are experiencing fast economic growth while continuing to transform their economies, Kaczmarek and Sztuba said.
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