Tax risk as a burden on the taxpayer?

The tax risk may be realized immediately in such a way that, for example, the company has not exercised all the deduction rights permitted by law, in which case the company has been ordered to pay too much tax. The realization of such a tax risk may be completely unaware of the company.

The opposite tax risk, which is more relevant from the point of view of this paper, arises in a situation where the taxes imposed on a company have become too small as a result of an incorrect declaration made by a taxable person. Many may think that this is only a positive thing, but this type of tax risk is often much more detrimental to the company, as few companies are prepared to realize this risk, i.e. to pay unpaid taxes and related sanctions in arrears. Before you start filing business taxes this is important for you to know.

So why is there always a tax risk involved in doing business?

This is because, among other things, the diversity of business activities has led to a number of tax laws being drafted in a way that leaves some room for interpretation. Taxation must always be based on a law, which means that not all tax laws can be enacted in such a way that they can only be applied to certain well-defined cases. Therefore, the interpretation of the law, but also pure human error, always poses a degree of tax risk.

As there is always a tax risk associated with business activities, every company, as well as other taxpayers, should pay attention to the fact that the amount of tax risk would not increase unnecessarily. Unfortunately, however, companies may unknowingly bear even a high tax risk due to incorrect information.

About the realization of tax risk in brief

So what does the realization of tax risk mean in practice? Often the tax risk presented above is realized in connection with a tax audit, but the risk may also be realized, for example, as a result of a request for clarification sent by the Tax Administration. Because taxation can be adjusted to the detriment of the taxpayer five years after the end of taxation, tax audits usually cover more than one tax year.

If the audit reveals errors that have led to non-payment of taxes, the unpaid taxes may be ordered to be paid retrospectively. At worst, the erroneous procedure has been repeated and has lasted for several years, when the tax risk, i.e. the amount of taxes imposed in arrears, may have increased very high. However, if the erroneous procedure has been minor and clearly unintentional, the taxable person may survive with a mere remark.

In addition to the taxes payable, the taxpayer may impose a tax increase, which is a sanction-like “lump sum,” as well as a tax increase corresponding to the interest on uncollected taxes. If the wrongdoing meets the criteria for a tax offense, the sanctions are often even tougher. For example, aggravated tax fraud can result in a maximum of four years in prison.