It is a good idea to keep records of service provision up to date
Service transactions account for approximately 30% of the total events reported by taxpayers in 2020-21. The services most frequently investigated by the authorities include intangible services (such as accounting, advisory and legal services). As these services are most often not associated with a specific tangible and tangible effect, this causes significant problems in verifying their economic validity and the marketability of the transaction performed, according to data published by the Ministry of Finance.
During the audit, the authority focuses on assessing whether the prices applied between related parties are in line with market conditions and whether they reflect the actual benefits and values derived from the services. Taxpayers are asked for:
evidence of the services provided,
confirmation of the market level of remuneration (including: cost base and allocation keys),
identification of the relationship of these services to the revenue generated.
Where the authority determines that the evidence submitted is not sufficient to unequivocally recognise that the services have in fact been performed, it may exclude these costs in part or in whole from the tax deductible costs.
Therefore, it is worthwhile to analyse in advance the benefits that will flow from the purchase of services and start collecting evidence of their performance by preparing a so-called benefit test. At the same time, it should be borne in mind that this test is not only evidence of the performance of the service, but also recognition of real benefits resulting from cooperation within the capital group.
It is important that the taxpayer collects documentation confirming the provision of services on an ongoing basis. During inspections, the authorities are not limited to documents confirming the effect of the work (reports or opinions), but also ask for working materials, project correspondence or time records. As the audit may cover a period of up to six years, the collection of materials after several years may prove problematic and time-consuming, so it is worth addressing the issue in advance and streamlining the process by preparing an appropriate procedure in the form of a policy or manual.
What about unrelated
It should be remembered that the issue of the benefit test also applies to transactions with unrelated parties. Also in their case, the taxpayer must demonstrate the marketability of the remuneration, the actual performance of the service and its relation to the revenue generated or securing the source of revenue. Again, a lack of adequate evidence of the provision of services may result in their exclusion in part or in whole from deductible expenses.
– Although the benefit test is generally not required by law (the exception being transactions with entities in tax havens), it can bring many benefits. Preparing such a document saves time related to searching for data on transactions carried out several years back, reduces costs related to the audit and gives a signal to the tax administration that the taxpayer is pursuing a transparent tax strategy, concludes Rafał Boguszewski of Thedy & Partners.