The significance of keeping tax books

According to the statutory definition the tax books include tax register of revenues and expences which are obligatory kept on the basis of separate regulation by tax payers or debt collectors* Therefore, tax books are so called „full books” as well as popular tax register of revenues and expences but also the records kept by taxpayers taxed at a flat rate and even register for VAT purposes. Register of sales conducted by using a cash register, popularly known as the fiscal cash is also considered as the tax book. However, the taxpayers - especially those who decide to keep accounts on their own – rarely realize how important it is to keep the book correctly without any faults and how it would result both financial as well as fiscal – what can follow the unreliable or faulty bookkeeping. It is true that Article 180 Tax Code allows as evidence all that might help to clarify the matter, and is legal. However, in the proceedings and inspections the evidence in written form, among them tax books are of crucial significance.

As it is highlighted by the Supreme Administrative Court in the appeal of 24 January 1996, SA/W 1531/95 „In the hierarchy of evidence associated with the level of taxes the reliable keeping tax books takes the first place, because associated with them presumption of the probative value in the range of what they show.” Every taxpayer who was controlled by the tax authorities knows that one of the first demands during the tax audit is presenting of the tax books for the checked period.

Why the tax books are so important? By virtue of Article 193 $ 1of the Tax Law, tax books keeping correctly and in non-defective way are the evidence of the records contained therein. Therefore, this regulation is the expression of particular probative value of tax books. If the tax authorities or inspections don't indicate that the books are conducted incorrectly or in defective way(the defects are of great importance for the issue) it must be considered as an evidence and can not determine the tax base by estimation. The books are regarded as reliable, if they reflect the actual situation. The tax books are considered as non-defective if they are kept according to the principles resulting from the separate regulations. Defectiveness of tax books can occurs in case the tax payer keeps his tax books on his own. However, keeping books by tax advisor can not exclude the defectiveness of the tax books. This can emerge in the situation when the taxpayer will not inform his advisor about essential matters related to business activity (e.g. completed sale of an asset) or will simply make a sale without registering.

The results of defectiveness of tax books are very serious. First of all, the tax books are not accepted as an evidence if they are kept incorrectly or in deceptive way. This gives the tax authority the right to define the tax base (income, turnover) by estimation. The estimation usually results in increasing of the tax base, and thereby determining the tax commitment in a higher dimension than that due to the tax books. If a such commitment is set back (and so is the rule), the taxpayer must also pay the interest aroused on tax arrears. In addition to the tax consequences, incorrect or deceptive bookkeeping it is a forbidden act in penal revenue law.* Who conducts incorrect tax books is subjected to the fine up to 240 daily rates. In the case of lesser importance the perpetrator of an offence is penalized by a fine for tax offence. The person who keeps the deceptive books is also subjected to the fine.

The consequences of unreliability and defectiveness of the tax books are so severe, that the taxpayer who wants safely conduct his business activity in a long run can not to neglect correctness of his tax books and cann't permit for defectiveness and unreliability. Practice has shown that the tax payer whose books were questioned for the period of several years back, due to financial problems (arrears, interests, fines) is practically forced to close down the business. As indicated above, the conducting books by tax advisor and good cooperation between the taxpayer and his advisor significantly reduces the possibility of a such situation.

 Source: Tax Adviser Office of Consumer's Newspaper

 November 2010