Generally, the transfer pricing methods accepted by the tax authorities are based on the OECD Guidelines. These methods are:

When selecting a price calculation method, taxpayer should make sure it is appropriate for the transaction. Since 2019, there is no obligation to use traditional methods before profit-sharing methods.

The new regulations also allow for the use of another method, including a valuation technique, if none of the five above methods can be used.

Since 1^st January 2019, the so-called Safe Harbour institutions is introduced into Polish transfer pricing regulations. Safe harbour means that some of the transactions executed by the taxpayer will not be subject to estimation, as long as they are executed under the conditions indicated by the legislator.

These transactions are:

• Low added-value services
• Loan (credit and bond) agreements.

Safe harbour for low value-added services could be applied where the cost mark-up for these services has been determined on the basis of the cost plus or TNMM method and is equal to:

• No more than 5% of the costs in case of purchase of services
• Not less than 5% of the costs for the provision of services

Moreover, the service provider does not have its place of residence, registered office or management in a tax haven and the recipient of the service should has a service price calculation including the type and amount of costs included in the, the manner of application and justification for the selection of allocation keys for all related parties who use the services and a description of the transaction, including an analysis of the functions, risks and assets.

The condition for the application of the safe harbour for loans, on the other hand, is that the interest rate of the loan is determined on the basis of the type of base interest rate and margin set out in the Minister of Finance notice. In addition, the loan agreement must not contain any provision for remuneration other than interest to be paid to the lender and the loan must not be concluded for a period exceeding 5 years.

The Ministry of Finance has decided that from January 1, 2024, for the purposes of safe harbour regulations for loan, credit and bond issues, the margin will be changed so that the maximum margin for borrowers will be 3.10 percentage points, while leaving the minimum margin for lenders at the current level of 2.20 percentage points.

It should be remembered that in order to benefit from the protection offered by the safe harbour for loan transactions, the total level of liabilities or receivables of the company with related parties cannot exceed PLN 20,000,000 or the equivalent of that amount, and the lender may not have a residence, registered office or management in a tax haven.

The regulations in force since 1^st January 2022 have significantly modified the deadlines for the obligation to submit the TPR and to prepare the documentation itself. These obligations must be fulfilled until:

• the end of the 10^th month following the end of the tax year – preparation of TP documentation
• the end of the 11^th month after the end of the tax year (with the same rule – for transactions occurred in 2023 and next years) – submission of TPR return.

A separate TP statement will no longer be required.

In case of benchmarking study, the analysis should be updated at least once every 3 years (if the business circumstances change in a way affecting the analysis the benchmarking analysis should be reviewed earlier).

Moreover, according to the present regulations, the tax authorities may request the taxpayer to prepare documentation in respect of transactions / events even if the value does not exceed the limits, provided that the circumstances suggest that their value could have been underreported in order to avoid the documentation obligation. In that case, Transfer Pricing documentation should be submitted within 30 days of the request. This obligation does not apply to micro-entrepreneurs.

For the “standard” TP obligations (after exceeding the thresholds) taxpayers are obliged to present complete TP documentation within 14 days of the tax authorities’ request (previously : within 7 days).

The Country by Country reporting obligation applies to:

Polish entities, which simultaneously:

• are the ultimate (dominating) entities in their groups
• are the entities consolidating financial reports
• operate directly or indirectly outside of Poland
• their last year’s consolidated income within and outside of Poland is over the equivalent of EUR 750 Mio.

Entities not being the ultimate parent if there is no other entity designated to provide such information in the group if one of the following criteria are met:

• the ultimate parent entity is not obliged to file a CbCR for the reporting year in its tax jurisdiction
• the appropriate jurisdiction in which ultimate parent entity is resident for tax purposes has not undertaken to share information about the entity group within 12 months of the end of the given reporting year
• the tax jurisdiction of the ultimate parent entity suspended automatic sharing of CbCR or failed to fulfil the obligation without notifying the dominating entity.

According to the present tax regulations members of groups of entities will be obliged to:

• notify that they are the ultimate parent entity or designated entity (or a different entity obliged to file the CbCR), or
• indicate the entity obliged to file CbCR together with its identity and tax residence.

The notification should be filed up to 3 months following the end of the reporting financial year of a group of entities. The new regulation* indicates what information should be included in the information about a group of entities.

The tax regulations provide fines for failure to fulfil these obligations (maximum amount: PLN 1 mln).

*The Regulation of the Minister of Finance of 13 June 2017 on the detailed scope of data to be included in the information about a group of entities.

Currently, the APA is up to the Head of National Fiscal Administration (KAS) decision, which is a confirmation of the selection and application of a method for determining transaction prices between related parties.

The main advantage of obtaining such decision is elimination of the risk of challenging transfer price methodology (assuming that the taxpayer complied with the APA provisions) and protection from penal and fiscal sanctions for individuals responsible for tax settlements.

Additional benefit of an APA is the right to recognize as a deductible cost subject to limitation under Article 15e of Polish CIT Law (low added value services). From 2022 onwards, art. 15e of Polish CIT Law has been repealed and the benefits of APA highly reduced.

Some further rules regarding APA are as follows:

• The possibility of applying for an APA by a foreign investor considering doing business in Poland by establishing a subsidiary company
• The APA is valid from the beginning of the tax year in which the application has been submitted
• Clarification of the elements of the application – following the model of local transfer pricing documentation
• Applying for APA covering transactions under proceedings or tax control during one of the last two tax years preceding the tax year in which the application is made is no more possible.

The fee is 1% of the value of the transaction covered by the APA limited by the following:

• For a unilateral APA referring to domestic entities only – min. fee: PLN 5 000 (approx. EUR 1,150) and max. fee PLN 50 000 (approx. EUR 11,500)
• An APA referring to a foreign entity – min. PLN 20 000 (approx. EUR 4,600) and max. PLN 100 000 (EUR 23,000)
• A bilateral or multilateral APA – min. PLN 50 000 (approx. EUR 11,500) and max. PLN 200 000 (approx. EUR 46,000)*.

Renewal fees are half of the amount of the fee for the renewed APA.

*1 EUR = 4.3480 PLN (ex. rate 29/12/2023)

The legislation in force since 1 January 2019 has introduced new mechanisms available to tax authorities when estimating revenue.

Possibilities are:

• Recharacterization of a transaction
• Disregarding of a transaction.

Recharacterization and disregarding of the transaction may be applied under the opinion of the tax authorities, if in comparable circumstances, unrelated parties guided by economic rationality would not have entered into the controlled transaction concerned.

In assessing these facts, the tax authorities shall take into consideration the conditions that have been agreed between related parties and the fact that the conditions agreed between them do not allow the transfer price to be set at a level that would have been agreed by economically unrelated parties based on considerations of realistically available options.

The effect of disregarding of a transaction by the tax authorities could lead to assessing the income or loss of the taxpayer without taking into account the controlled transaction, while the effect of recharacterization could lead to assessing the income or loss of the taxpayer with respect to the relevant transaction (i.e. the one that would be made by unrelated entities).

Tax authorities cannot use the above tools just because of:

• Difficulty in verifying the transfer price
• Lack of comparable transactions between unrelated parties in comparable circumstances.

To meet the taxpayers’ expectations, the legislator pointed out that a taxpayer can recognize a transfer pricing adjustment by changing the amount of revenues or expenses if the following cumulative conditions are met:

• Controlled transaction was performed at arm’s length
• There was a change in significant circumstances affecting the terms of transaction or costs/revenues influencing the transfer pricing became known and the prices must be adjusted to comply with market terms
• The taxpayer has a statement from the related party that if has adjusted the transfer prices in the same way. Beginning in 2022, it was allowed to have a statement or accounting proof from the related party.
• The related party has its place of business in Poland or in a country or territory with which Poland has an agreement to avoid double taxation and there is a legal basis for exchanging tax information with that country

At present, the sanctions for the use of non-market prices are as follows:

• 10% (basic rate) of the sum of the undue or overstated tax loss and not reported (in whole or in part) taxable income to the extent resulting from this decision
• 20% (increased rate):
  • if the basis for determining the additional liability is exceeding 15 000 000 PLN
  • in the case of failure to submit transfer pricing documentation
• 30% (increased rate): the cumulative fulfilment of both conditions above

Furthermore, the Fiscal Penal Code provides a fine up to 720 daily rates per day in the following situations:

• late submission, factually incorrect or failure to submit a statement that the Transfer Pricing documentation has been prepared. Late submission, factually incorrect or failure to submit TP-R information.

On the other hand, 240 daily rates per day are provided in the following situations:

• preparation of transfer pricing documentation after the deadline
• late submission of the TP-R information.