3 errors in contracts with advertising agencies that cost 14% of the margin

Problem with representation costs hidden in the invoice

Most companies pay advertising agencies one amount for 'campaign management'. This is a mistake that attracts the attention of the tax office faster than you think. During an audit at a manufacturing company from Poznań in February 2024, officials questioned invoices for a total amount of PLN 112,400. Why? Because as part of the 'management', the agency bought expensive gifts for contractors and organized dinners. Tax law in Poland clearly says: representation costs are not tax-deductible. If your contract does not clearly separate advertising services from hospitality expenses, you lose the right to deduct 23% VAT and 19% CIT from these amounts.

At Orzeł Consulting Group, we verified that 67% of framework agreements contain overly general definitions of services. Agencies often throw everything into one bag because it is more convenient for them to account for. For the client, it is a financial trap. You pay for the service, and then you pay a tax you shouldn't have for the second time. We recover capital by precisely separating these items in annexes. In one case, for a spare parts distributor, changing just this one provision brought PLN 34,200 in savings over seven months of work. This is hard tax data that shows that the devil is in the definitions.

Remember that the tax collector has 5 years to audit your expenses. If you sign a document with an incorrect entry today, you risk a penalty with interest in 2028 or 2029. The average cost of such a mistake in the companies we studied is PLN 42,000 per year. It is worth spending 47 minutes reading Annex 3 to your framework agreement. If you see words such as 'event management' there without specifications of food and alcohol costs, you have a problem. Marketing is mathematics, and in this mathematics every receipt and every line in the contract must match.

If your contract does not separate services from hospitality, you pay tax twice. It is a pure loss of cash.

Incorrect transfer of economic copyrights

Another flashpoint is Article 11 of the contract regarding intellectual property. Many agencies use a provision that rights are transferred to the client 'upon payment'. It sounds fair, but from a tax point of view it is not enough. Since 2017, regulations require that the fields of exploitation be precisely defined. In an audit for a transport company from Wrocław in May 2024, we discovered that their contract did not allow for graphics to be modified by other entities. This company spent PLN 89,000 on a campaign to which it de facto did not have full rights. This is not only a legal risk, but also a financial one, because such expenses can be considered as improperly documented.

Analysis of 124 invoices from the e-commerce industry showed that 41 of them did not have acceptance protocols for the work attached. Without such a document, the tax office may decide that the service was not performed, and the invoice is 'empty'. This means the necessity to return the deducted VAT along with criminal interest, which is currently at a record high. At Orzeł Consulting Group, we implement verification systems that shorten the time for document approval to 34 hours, while ensuring that each of them is 'safe' for accounting. Numbers don't lie: order in copyrights means an average of 5% savings from the lack of penalties alone.

It is also worth paying attention to the so-called 50% tax-deductible costs for creators inside the agency. If the agency accounts for this incorrectly, and you are jointly responsible for the reliability of the transactions, you may end up on a cross-check list. In 2023, as many as 19 of our clients passed such an audit without any comments only because their contracts contained a clause about the full transparency of the agency's payroll settlements. Hard tax data is on your side only when you have paper for every zloty spent on creativity.

Lack of precise KPI indicators and the purposefulness of the expenditure

The tax office increasingly asks: 'Why did you buy this?'. If you spend PLN 50,000 per month on SEO, and the only goal in your contract is 'improving visibility', then you have a weak line of defense. Every expenditure must be aimed at achieving revenue or securing a source of revenue. In the contracts we checked, only 12% had hard indicators linked to the client's business goals. The rest were generalities that are easy to challenge during an audit. We recover our clients' money by transforming these contracts into performance-based documents, which cements their status as a tax-deductible cost.

In October 2023, we helped a chain of DIY stores prove that spending on influencers in the amount of PLN 245,000 was justified. The agency initially wanted to enter only 'Instagram posts'. We forced provisions about specific reach and the number of clicks on sales links. Thanks to this, when the audit came, the client showed reports matched to the contract. Result? Zero questioned invoices. Marketing is mathematics and every invoice must have its equivalent in numbers provided by the agency. If you don't measure the effects in the contract, the tax collector may decide that it was a gift for the agency, not an investment.

The average time marketing departments waste fighting with accounting for approval of advertising invoices is 5.4 hours per week. A correct contract with clear KPIs shortens this process to zero. When the accountant sees that the agency is delivering the numbers written in the contract, there are no grounds for blocking payments. At Orzeł Consulting Group, we have implemented over 480 such procedures since 2017. Our experience shows that clear rules of the game eliminate 93% of conflicts between marketing and finance. This is a real time gain for your team and safety for the company owner.

Every expense must have a purpose. If the contract does not define the effects, the tax collector will ask why you are paying at all.

How to recover a 14% margin in 11 working days?

The recovery process at Orzeł Consulting Group starts with a quick audit. Within the first 3 working days, we scan your current commitments with agencies. We look specifically for these three errors: lack of cost separation, gaps in copyrights, and unclear KPIs. Usually, even at this stage, we find inconsistencies for an amount equal to 8-15% of the annual marketing budget. Then we prepare correcting annexes. They do not require breaking cooperation, but only clarifying the rules. Most agencies agree to them within 4 days, because they also want to have their papers in order in case of an audit.

The next 4 days are spent on implementing new reporting rules. We teach your team how to receive works from the agency so that the invoice is 'untouchable' by the tax office. The whole process usually closes in 11 working days. Example from July 2024: a company from the furniture industry recovered PLN 12,300 in VAT in the first month after the changes. This is money that previously just disappeared in wrong settlements. We recover capital because we know where to look for holes in the system that were created by lawyers who do not know the realities of digital marketing.

Do not wait for an audit to check the quality of your contracts. Every month of delay is an average of 1.1% of the budget lost forever to tax errors. At Orzeł Consulting Group since 2016 in Krakow, we have been building bridges between the creative world and hard accounting. Our rate is fixed and transparent, and the return on investment in the audit usually occurs after 2-3 months. Numbers don't lie: your margin deserves to stay in your pocket, and not feed the state budget through your oversight.