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In an era of increasing business fraud and increasingly effective tax authority audits, entrepreneurs cannot trust new counterparties without reflection. Every potential customer must be checked because cooperating with an indebted, insolvent or fraudulent company carries risks. How should you properly check your counterparties? That is the subject of today’s article.
Why should you check a counterparty? Verification before every cooperation, due diligence and reduced transaction risk
Checking potential customers should underpin the operations of every responsible entrepreneur who cares about their company’s finances and reputation.
Ongoing, appropriate scrutiny of all counterparties can make it substantially easier to demonstrate due diligence in commercial relationships, helping significantly reduce business risk, particularly potential liability for someone else’s tax obligations.
This risk reduction also involves avoiding cooperation with indebted and insolvent companies, which may end in financial losses and non-payment for goods or services, and preventing various types of fraud, which can often harm even the honest party to a transaction.
Every counterparty should therefore be verified. How? We explain in the rest of this article.
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How do you check a potential counterparty and their reliability? Start with public registers such as CEIDG, the National Court Register (KRS) and REGON
Start verification with the Central Register and Information on Economic Activity, the National Court Register and the REGON register.
Consult the first register when the counterparty runs a sole proprietorship or is a partner in a civil partnership.
In CEIDG, you can check:
- The entrepreneur’s details, including business address, NIP, REGON and contact information, and any authorised representatives;
- Their status: whether active, closed or suspended;
- The date activity began and any suspension and resumption dates;
- The type of activity;
- Information on bankruptcy, recovery or restructuring proceedings.
The second register is the National Court Register, devoted entirely to commercial-law companies: general partnerships, limited partnerships, limited joint-stock partnerships, joint-stock companies, limited liability companies and professional partnerships.
You can check all company details, identification numbers and history here, as well as:
- The legal form of activity, also affecting potential liability and business risk;
- Representation rules, to verify who can validly act on the company’s behalf;
- The amount of share capital and consequently the maximum liability for obligations;
- Dates of filed financial statements;
- Information on transformations, liquidation, commencement of bankruptcy, restructuring or recovery proceedings, and appointment of a court-appointed custodian.
The third register also collects entrepreneur information: REGON, the National Economy Register, maintained by Statistics Poland for statistical, administrative and tax purposes.
How do you check a company? VAT issues: the VAT taxpayer White List and VIES (EU VAT)
The next important verification point concerns all VAT-related issues.
Primarily, check the White List, or VAT taxpayer list.
Besides basic company details, it provides:
- Whether the entity is or was an active VAT taxpayer at a particular time;
- Any date of registration as an active VAT taxpayer;
- The date and reason for removal from the register or refusal of registration;
- The bank account number verified by the Head of the National Revenue Administration.
The last point is particularly important. Verifying the counterparty’s bank account may avoid joint and several liability with the customer for tax arrears arising from the transaction.
For counterparties from other EU countries, VAT information can be checked in the VIES IT system. This European Commission search engine verifies whether a company is registered as an entity conducting intra-Community transactions.
Where can you check whether a counterparty has debts? The Insolvent Debtors Register, Economic Information Bureau (BIG) reports and the tax office
No one wants to cooperate with indebted businesses. Information about a potential partner’s debts can be obtained from:
- The Insolvent Debtors Register, a state register maintained by the National Court Register;
- Economic Information Bureaus (BIG) operated privately, including BIG InfoMonitor, Krajowy Rejestr Długów Biuro Informacji Gospodarczej SA, Krajowe Biuro Informacji Gospodarczej and Rejestr Dłużników ERIF Biuro Informacji Gospodarczej SA.
You can obtain information on a counterparty’s tax arrears directly from the relevant tax office. It can also provide information on returns and other compulsory documents submitted by the counterparty. However, you must be a party to a transaction to request this. The office will therefore not provide information on prospective customers with whom you have not yet cooperated.
Interested in this article? Explore our tax advisory services and see how we can help:
Summary
How and why should you verify EVERY counterparty? CEIDG, KRS, REGON, the White List, VIES, the tax office and BIG
Counterparty verification helps minimise business risk, particularly potential liability for someone else’s obligations.
Verification should be broad and include checking the customer in:
- CEIDG or KRS, depending on the legal form, and REGON;
- The VAT taxpayer list, known as the White List;
- The VIES IT system for counterparties from other EU countries;
- Debtor registers: the Insolvent Debtors Register and Economic Information Bureaus.
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