Reliability of KPiR and failure to show costs - the most important information
Entrepreneurs who settle accounts on the basis of the tax book of revenues and expenses are obliged to ensure that it is kept in a faultless and reliable manner. In addition, tax books constitute evidence in tax proceedings, therefore the reliability of the KPiR has been regulated in the applicable regulations. Read our article and find out what KPiR integrity is.
Reliability of KPiR - what does it mean?
Art. 193 of the Tax Ordinance defines the reliability of the KPiR and the ineffectiveness of its conduct:
(...) § 1. Tax books kept fairly and in a non-defective manner constitute evidence of what results from the entries contained therein.
§ 2. Tax books are considered to be reliable if the entries in them reflect the actual state of affairs.
§ 3. Tax books kept in accordance with the principles resulting from separate regulations are considered ineffective (...).
In connection with the above, reliable books are primarily those whose records reflect the actual state of affairs. On the other hand, the inadequacy of the books is related to keeping them in accordance with applicable regulations.
The reliability of the KPiR has also been described in the regulation on maintaining the KPiR, and more precisely in § 11 sec. 4, according to which the book kept in a reliable manner is considered if:
the amounts of revenue omitted or incorrectly included in the records do not exceed 0.5% of the revenue shown in the book for a given tax year or revenue shown in the tax year until the date on which the head of the tax office or the tax inspection authority found these errors,
as a result of an accident or other random event, the taxpayer could not make appropriate entries in the book,
as a result of incorrect entries, the amount of the tax base was increased, with the exception of errors consisting in failure to disclose or lowering the cost of purchasing basic materials, commercial goods and labor costs,
the taxpayer completed the entries or corrected incorrect entries in the book before the commencement of the inspection by the head of the tax office or by the tax inspection authority,
incorrect entries are the result of an obvious mistake, and the taxpayer has accounting evidence that meets the conditions referred to in § 12 section 3rd regulation.
Incorrect classification of the expense as tax costs and the reliability of the KPiR
Violation of the law due to improper application of the regulations in the case of exposing expenses which, in accordance with the applicable regulations, do not constitute a cost for tax purposes, does not affect the reliability of the Fiscal Principle. The judgment of the Supreme Administrative Court of May 31, 2011, ref. No. II FSK 135/10 in which we read:
(...) Questioning a specific expense as a tax deductible cost may be carried out without using the legal basis and the legal procedure under Art. 193 O.p., which refers to the actual state of unreliability of tax books, which is the main reason for estimating the tax base, does not regulate the proving of the relationship between a given expense and the purpose of obtaining income in a tax year (...).
Mrs. Anna Kowalska runs a grocery store. She purchased commercial goods and articles from the warehouse, which she used for her own needs. Received one invoice for the purchase made. Will including the full value of the invoice as the cost of purchasing trade goods and materials in column 10 of the KPiR result in the ledger being unreliable?
In the presented situation, Ms Anna purchased commercial goods, the cost of which is a tax cost and is entered in column 10 of the KPiR. However, the invoice also shows expenses for own needs that are not related to business activity and have been excluded from the catalog of tax deductible costs. As a rule, the fact that the entire value of the invoice is included in the costs does not make it unreliable. However, Ms Anna should correct the entries, because she is not entitled to deduct the tax base by the value of the private purchase made.
Reliability of KPiR and failure to show costs in KPiR
If the entrepreneur does not include in the tax costs invoices documenting other expenses, other than those related to the purchase of commercial goods and materials and labor, there is no basis for considering the book as unreliable. Keeping records of other expenses in the KPiR is a privilege of the entrepreneur, not his obligation. Despite the fact that failure to disclose them in tax costs will result in overstating the tax base, the legislator did not mention their recognition in the KPiR as mandatory.
Mrs. Anna Kowalska runs a grocery store. She purchased cleaning products that will be used to clean the premises where she runs the store. Ms Anna did not include the expense in the tax revenue and expense ledger. Will the fact that the expenditure is not reported in the KPiR be tantamount to the unreliability of the book?
As a rule, the entrepreneur is obliged to show in the KPiR records the expenses incurred for the purchase of commercial goods, materials and labor costs. Cleaning products purchased by Ms Anna do not meet the definition of assets subject to mandatory registration. Therefore, failure to disclose an expense as tax expense will not result in recognition of the KPiR as unreliable, as disclosing other expenses as tax deductible costs is a taxpayer's privilege and not an obligation.
It is different when there is no cost associated with the purchase of commercial goods, base material or labor costs. Failure to record the expense related to these activities may undermine the integrity of the KPiR. This, in turn, leads to serious consequences, such as the failure to recognize the KPiR as evidence enabling the determination of the tax base. In this case, the tax base will be determined in accordance with Art. 23 §1 of the Tax Ordinance, i.e. by estimating what may be unfavorable to the entrepreneur.
As far as failure to meet the condition of fairness is concerned, it is a qualified act pursuant to Art. 61 § 1 of the Fiscal Penal Code as a fiscal offense punishable by a fine of up to 240 daily rates. It is also worth remembering that defective bookkeeping is also a prohibited act and is classified as a fiscal offense, and therefore is punishable by a fine (Article 47 § 1 of the Commercial Code) in the amount of 1/10 to 20 times the minimum wage (in 2017 - from PLN 200 to PLN 40,000).
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Mrs. Anna Kowalska runs a grocery store. In May 2016, she purchased merchandise, but did not recognize the purchase as tax deductible as she lost the invoice she had received. As a result, it overestimated the tax base and paid a higher advance income tax payment. Will failure to show the expense, despite paying a higher tax, entail additional penalties that may be imposed on Ms Anna?
Pursuant to the applicable regulations, the entrepreneur is obliged to show in the tax deductible costs the expenses incurred for the purchase of commercial goods. In a situation where Ms Anna did not meet this condition, in the event of an inspection, a fine of 240 daily rates may be imposed.In a situation where the inspection has not commenced, Ms Anna should ask the contractor for a duplicate invoice and on this basis post the cost invoice.
Summing up, it should be noted that despite the commonly accepted statement that reducing income by costs is not the taxpayer's obligation, but a privilege, the entrepreneur while keeping tax records should take into account the concept of the reliability of the KPiR and its basic principle that entries in the book should reflect the actual state. In addition, in accordance with the applicable regulations, in order to maintain the reliability of the KPiR, the entrepreneur must include in the book all expenses related to the purchase of commercial goods and materials as well as invoices documenting labor costs. If the tax books are kept in an unreliable manner, the taxpayer commits a prohibited act and is punishable by a fine.