The newest tax regulations came into force as of 1st January 2017 and introduced requirement to demonstrate that terms of cooperation and settlements between related parties were determined in line with the arm’s length principle.
The new regulations include a number of significant changes in the Polish transfer pricing area and impose new requirements on taxpayers that are planning / concluding their related-party transactions. In practise, much more information on intra-group transactions will be required by the tax authorities from taxpayers.
Download the latest “2017 Transfer Pricing Overview for Poland (PDF)” for more details, or read more below:
- Corporate Income Tax Act from February 15th,1992 (Article 9a, 11), (Journal of Laws 2016, item 1888, as amended)
- Personal Income Tax Act from July 26th, 1991 (Article 25, 25a), (Journal of Laws 2016, item 2032, as amended)
- Tax Ordinance Act from August 29th, 1997 (Articles 20a-20r), (Journal of Laws 2017, item 201, as amended)
- Decree of Minister of Finance from September 10th, 2009 on corporate income through evaluation and on manner and procedure of corporate double taxation elimination in case of adjustment of income of related entities (Journal of Laws 2014, item 1186)
- Decree of Minister of Finance from September 10th, 2009 on personal income through evaluation and on manner and procedure of corporate double taxation elimination in case of adjustment of income of related entities (Journal of Laws 2014, item 1176)
- Decree of Minister of Finance from April 23rd, 2015 on determination of countries and territories applying harmful tax competition in respect to corporate income tax (Journal of Laws 2015, item 600)
- Decree of Minister of Finance from April 23rd, 2015 on determination of countries and territories applying harmful tax competition in respect to personal income tax (Journal of Laws 2015, item 599)
- Double Tax Treaties
As an OECD Member State and an EU Member State, Poland adheres to the OECD Transfer Pricing Guidelines, especially OECD Report on counteracting BEPS (“Base Erosion and Profit Shifting”), in particular action 13: “Re-examine transfer pricing documentation” and to the EU Code of Conduct on Transfer Pricing documentation for associated enterprises.
Transactions Subject to Transfer Pricing Documentation
With effect starting January 1st, 2017, the capital threshold to qualify as a related party increased from 5% to 25%. Thus, transactions between entities holding less than 25% shares (directly or indirectly) will not be covered by documentation obligation.
Moreover, starting 2017 the transfer pricing rules apply also to partnerships and consortiums between related parties.
The documentation requirement applies to:
- transactions having material impact on the taxpayer’s income – the materiality level depends on the amount of the taxpayer’s revenue for the preceding tax year
- other events with related parties that are reflected in the taxpayer’s accounting books having material impact on the taxpayer’s income (e.g. finance management / cash pooling, cost-sharing agreements)
Scope of Transfer Pricing Documentation
The three-level concept
A three-level concept of the transfer pricing documentation was introduced. Under this concept, the taxpayer is obliged to prepare the documentation depending on the revenues and expenses disclosed in the books for the previous year.
Represents local documentation containing details of transactions or other events between the Polish company and other group companies disclosed in the accounting books.
The tax payer is obliged to prepare it if revenues or expenses exceed EUR 2 mln; however if revenues or expenses exceed EUR 10 mln, the local file has to be supplemented with a benchmarking study (covering Polish comparable data).
The local file shall include in particular:
- description of the taxpayer and the transactions / other events
- indication of type and subject matter of the transaction / event
- financial data
- description of the income calculation method and its justification
- description of the competitive / business environment
- the source documents (i.e. contracts).
The master file contains group level information. The tax payer is obliged to prepare it if revenues or expenses exceed EUR 20 mln.
The master file shall include the following:
- description of the entity preparing the documentation the organizational structure
- the Transfer Pricing policy
- description of the group’s business activity
- the group´s financial situation
- detailed information on intellectual property (including especially the group strategy on creation, development and maintenance of intellectual property)
- description of any agreements concerning income taxes made between the group components and the tax authorities in other countries (including unilateral APAs).
Country-by-country reporting (CbCR)
The report on global allocation of income and tax within the group (required for groups in which the parent company consolidating the accounts is located in Poland). This document has to be filed by the holding company and if consolidated revenues exceed EUR 750 mln.
Transactions with related parties are considered as material if in the year preceding the analysed tax year the taxpayer’s revenues exceeded the following thresholds:
1)The values expressed in EUR are converted to PLN at the average exchange rate published by the National Bank of Poland for the last working day of the tax year preceding the tax year for which the documentation is prepared.
According to the new regulations, the following categories have no obligation to prepare Transfer Pricing documentation:
- taxpayers whose revenues (expenses) do not exceed EUR 2 mln in a given year
- taxpayers who concluded an APA relating to such transaction – they will be obliged to prepare a simplified Transfer Pricing documentation including only:
- the financial data
- a detailed description of transactions
- the profit/loss calculation method
- transactions where the price results directly from legal regulations.
Transfer Pricing Methods
Generally, the transfer pricing methods accepted by the tax authorities are based on the OECD Guidelines. These methods are:
- CUP (Comparable Uncontrolled Price Method)
- Resale Price Method
- Cost Plus
- TNMM (Transactional Net Margin Method)
- Profit Split Method
The standard methods are preferred over others. When the transfer price is determined by the tax authorities, the CUP method is applied in the first instance.
If a taxpayer has determined the arm’s length value of a transaction by applying one of the three standard methods (CUP, Resale Price and Profit Split) and there is no doubt about the objectivity in choosing the method, this method is also binding for the tax authorities.
The local Transfer Pricing documentation should be prepared by the date of submitting the tax return for the given tax year. Within this period, taxpayers are also obliged to submit a statement on having prepared the documentation and a simplified report on transactions / other events executed with related entities.
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 new 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.
Despite the above, taxpayers are still obliged to present complete Transfer Pricing documentation within 7 days of the tax authorities’ request.
Regardless of the limits, taxpayers will be obliged to prepare documentation also for the tax year following the year for which they were obliged to prepare the documentation.
At present, a draft of Regulation on the detailed scope of data to be included in CbCR is being prepared (it will reflect the guidelines contained in BEPS Action 13).
The CbCR obligation will apply 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 mln
- 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
In case the member of the group does not receive all required information about the group from the parent company, said information is presented based on the knowledge of the party or information obtained for this purpose (this fact should be disclosed in the CbCR file).
The CbCR file must be filed for the first time within 12 months from the end of the group’s reporting year (for years started after 31 December 2015).
According to the new 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 before the end of the group’s reporting year.
New tax regulations provide fines for failure to fulfil the aforementioned obligations (maximum amount: PLN 1 mln).
- Polish entities, which simultaneously:
Advance Pricing Agreements
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 such decision is elimination of the risk of the tax authorities challenging the pricing mechanism applied in the given transaction (assuming that the taxpayer complied with the APA provisions) and protection from penal and fiscal sanctions for individuals responsible for tax settlements.
In should be mentioned that in January 2016, new APA regulations came into force. The main changes include following issues:
- the APA decision is binding from the date of submitting the APA application to the KAS
- APA decision may also include now cost sharing agreements
- APA decision included the “terms and conditions” agreed between related parties
- renewal of an APA decision which replaces the procedure of extension of APA validity period (it means that the taxpayer is allowed to change/update minor APA elements)
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 1,158) and max. fee PLN 50,000 (approx. EUR 11,584)
- an APA referring to a foreign entity – min. PLN 20,000 (approx. EUR 4,634) and max. PLN 100,000 (EUR 23,168)
- a bilateral or multilateral APA – min. PLN 50,000 (approx. EUR 11,584) and max. PLN 200,000 (approx. EUR 46,336)
Renewal fees are half of the amount of the fee for the renewed APA.
CIT-TP or PIT-TP statement
Taxpayers obliged to prepare the Transfer Pricing documentation whose income/costs exceed the equivalent of EUR 10 mln in a tax year should enclose a simplified statement on transactions and other dealings with associated enterprises or on payments made in connection with such dealings (directly or indirectly) domiciled / seated or the management board of which is located in the territory or in a country applying harmful tax competition to the annual tax return.
The statements shall be prepared on special CIT-TP or PIT-TP forms and shall include detailed data concerning the amount of individual transactions with affiliates.
Statements on drawing up tax documentation
Since 2017, the taxpayers are obliged to submit statements confirming that complete tax documentation was prepared. The deadline for submitting such statements is the date of submitting the annual tax return.
If the taxpayer does not submit Transfer Pricing documentation at the request of the Polish tax authorities, a 50% penalty tax rate is applied for income assessed by these authorities.
Moreover, the taxpayer will be required to pay interest on tax arrears and fiscal penalties resulting from personal responsibility.
However, if the taxpayer provides the required Transfer Pricing documentation on time, the penal tax rate for income assessed can be reduced to the standard tax rate.