Accounting & Payroll Partner at RSM Poland
According to the National Court Register, in 2016, 7122 companies with foreign capital started business in Poland. This is the best result ever, and an increase by 6.2% compared to the previously record-breaking year 2015.
And if we add to this the companies registered in previous years, including those where foreign shareholders acquired shares (e.g. shelf companies, i.e. fully registered companies ready to start operation), we are dealing with quite a large group of entities. For all of them, it is natural to strive for such regulation and management of accounting affairs in Poland that could most resemble the reality of their parent company or major shareholders.
INTERNATIONAL ACCOUNTING IN POLAND
One of the consequences of participation of foreign capital in a company and belonging to a group of companies from different countries is the financial and accounting system imposed by the group. Moreover, quite frequently, we deal with bookkeeping by the accounting department located in London, New York or Mumbai ...
Due to the fact that since August 2014, in connection with the entry into force of the deregulation act, activities related to bookkeeping services can be performed by any person who is not listed in criminal records and has bought a third-party insurance policy, in theory, it is not a problem.
Foreign shareholders welcome the information that the Polish Accounting Act allows for the possibility of keeping the books abroad. They forget, however, that there are also other requirements that arise from the Accounting Act or tax acts, whose observance is necessary to ensure the compliance of the books kept in accordance with legal regulations.
FOREIGN ACCOUNTING PROGRAM AND POLISH LEGISLATION
Based on daily observations and experience from cooperation with international capital groups, we have identified the most common problems faced by Polish accountants starting work on a foreign accounting system or trying to prepare tax returns based on the entries included therein.
1. Issues related to the obligation of keeping books in Polish
Although the accounting software can be managed in a different language, the names of the accounts, trial balance, report headings, and, above all, transaction descriptions on general ledger accounts and subsidiary accounts must be prepared in Polish.
On a daily basis, when all the people working with the system use a foreign language fluently, the use of descriptions in English (the most common solution) does not cause any problems. Nevertheless, it may result in significant costs at the time of a tax or fiscal audit. And I mean not only criminal consequences resulting from the provisions of the Accounting Act or the Penal and Fiscal Code, but, for instance, the need for the official translation of all accounting entries (see Art. 72(1)(3) of the Act on the National Fiscal Administration). In case of many hundreds of transactions, the cost of the certified translation may be considerable, and one cannot always rely on the leniency of Polish tax authorities.
2. Issues related to the application of correct exchange rates
Another requirement that should be investigated more thoroughly is the requirement of keeping the books in Polish currency. The fact that the accounting ledgers shall be kept in Polish zloty usually does not raise any doubts. However, it is connected with the need to record the transactions denominated in foreign currencies so that it would be possible to determine the correct value of this transaction in both currencies. And then problems resulting from the failure to adjust the system to Polish regulations may arise.
In this case, it is crucial to use the correct exchange rate, especially when we are faced with the necessity of using different exchange rates for individual areas (Accounting Act, CIT settlements, VAT settlements). Unfortunately, some companies tend to ignore the average exchange rate of the National Bank of Poland from the day preceding the transaction and they attempt to use one average exchange rate for a given month or even its own corporate exchange rate resulting from internal regulations. It is easy to imagine that in such case, tax returns may be incorrect, and it is easy to be accused of keeping the books in an unreliable manner.
3. Lack of continuation in sales invoices
Sometimes, the central financial and accounting system is also an application for issuing sales invoices. This facilitates work, especially when invoices are automatically posted in the system.
Unfortunately, when the system issues sales invoices for a dozen or so countries, it happens that the subsequent invoice issued by a Polish entity has a number larger by a dozen or so than the previous one. In case of an audit, this situation may be considered incorrect, and the record may be deemed faulty. As pursuant to Art. 106 of the VAT Act, one of the obligatory components of an invoice is its unique and subsequent number. Currently, with the information forwarded in Standard Audit Files, offices are able to detect such inconsistencies much faster.
4. Defective VAT registers and Standard Audit File (or the absence thereof)
Not always VAT registers generated by a foreign financial and accounting system include the data necessary from the point of view of Polish legislation (although it would seem that the requirements regarding their minimum scope are clear and understandable). Regulations concerning generating and forwarding SAFs, in force since July 2016, have only exacerbated this problem. In a situation when the cost of implementing this functionality to the accounting software is high, the companies use a solution in the form of exporting data to external systems (e.g. Excel files), and then creating interfaces that allow for sending the SAF structure to the tax office.
5. The application of IAS in Polish books
Due to the fact that in many cases parent companies or foreign shareholders of Polish companies keep their books in accordance with International Accounting Standards, there is a tendency to apply the same accounting rules also in Polish books.
Unfortunately, the Polish Accounting Act clearly stipulates which entities are entitled to prepare separate financial statements and keep the books in accordance with IAS. They include exclusively the following:
- issuers of securities admitted to trading and issuers who intend to apply for or who apply for their admission to trading on one of the regulated markets of the European Economic Area countries;
- entities composing a capital group where the parent company prepares consolidated financial statements according to IAS;
- branches of a foreign entrepreneur, if the entrepreneur prepares the financial statements according to IAS.
Entities that fail to meet the conditions specified in the aforementioned regulations may not voluntarily apply to their financial reporting other regulations than the provisions of the Accounting Act, including IAS.
We also need to remember that the decision on the preparation of financial statements in accordance with IAS shall be made by the approval authority, and such statements shall be subject to a mandatory audit by an expert auditor - even if the limit values relating to employment, total revenues and balance sheet total are not met.
Giving in to pressures from headquarter to have in Polish books the same entries as in corporate books (according to IAS) may result in criminal penalties or in problems with the tax office in case when the tax returns prepared based on such books fail to reflect the facts.
Finally, it is worth mentioning that failure to keep accounting books, keeping them in the manner contrary to the provisions of the Accounting Act or entering unreliable data in the books is subject to a fine or imprisonment for up to 2 years, or both these penalties jointly ...
To avoid sanctions, it is advisable to make sure that the computerised accounting system is not only adapted to the information needs of the group, but also consistent with the requirements of the Polish Accounting Act and tax law. And if it is not, it should be optimised and localised (translated and adapted to Polish requirements and standards) as soon as possible.
 As a side note, it is worth noting that according to the Position of the Committee of the Accounting Standards Board of 13 April 2010 on certain principles of bookkeeping, it is important to distinguish between the activity of entering documents into the accounting system and bookkeeping - the very act of entering data into the accounting system, without deciding on the method of their classification and auditing the records, is not bookkeeping.