The significant tax regulations came into force as of 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. Moreover, during 2017 and 2018 some importance long-anticipated decree were published. Those documents implement for example:
- regulation on CIT and PIT Act information which should to be disclosed in tax documentation;
- indicates what information should be included in the information about a group of entities (Country by Country Report);
- extend deadline for taxpayers in the area of Transfer Pricing for FY 2017 and 2018.
Download the latest “2018 Transfer Pricing Overview for Poland (PDF)” for more details, or read more below:
Applicable Legislation
- Corporate Income Tax Act from February 15th,1992 (Article 9a, 11);
- Personal Income Tax Act from July 26th, 1991 (Article 25, 25a);
- Tax Ordinance Act from August 29th, 1997 (Articles 20a-20r);
- 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;
- 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;
- 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;
- 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;
- 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
The capital threshold to qualify as a related party is 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.
Local file
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).
Master file
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.
Thresholds
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:
Revenues / Costs in the previous year[1] Value threshold of a single transaction / event less than EUR 2 mln exempt from the transfer pricing documentation obligation from EUR 2 mln but not more than EUR 20 mln transactions and dealings materially affecting the taxpayer’s income (loss) will mean transactions and dealings of one type totalling more than the equivalent of EUR 50 thousand plus EUR 5 000 per every EUR 1 mln of revenue in excess of EUR 2 mln from EUR 20 mln but not more than EUR 100 mln transactions and dealings materially affecting the taxpayer’s income (loss) will mean transactions and dealings of one type totalling more than the equivalent of EUR 140,000 plus EUR 45,000 per every EUR 10 mln of revenue in excess of EUR 20 mln from EUR 100 mln transactions and dealings materially affecting the taxpayer’s income (loss) will mean transactions and dealings of one type totalling more than the equivalent of EUR 500,000 in a tax year It should be mentioned that the taxpayers obliged to prepare the TP 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.
The new regulation[2] includes broader information obligations upon a taxpayer, connected with intercompany transactions, including justification for prices in intercompany settlements. Above-mentioned regulation provides for the elements of: (i) a local file, (ii) a master file, and (iii) a benchmark study.
Exceptions
According to the actual 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.
[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.
[2] The Decree of the Minister of Economic Development and Finance of 12 September 2017 on the detailed scope of data to be included in the TP documentation.
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.
Deadlines
Referring to the new regulations[1], the deadlines for preparation TP documentation (both in PIT and CIT) extended to the end of the ninth month after the end of the fiscal year. The new regulations apply to:
- preparing the transfer pricing documentation (ie. local file, benchmark and master file);
- filing the statement that the TP documentation is ready with the tax office[2], and
- attaching to the tax return for the fiscal year a simplified transfer pricing statement (PIT-TP or CIT-TP form).
The extended deadlines apply to obligations for which deadlines under the current regulations:
- expire in 2018 for transfer pricing documentation, the statement and simplified transfer pricing statement (PIT-TP or CIT-TP form) for the previous fiscal year, i.e. 2017 if the fiscal year corresponds to the calendar year or
- expire in 2019 for transfer pricing documentation, the statement and simplified transfer pricing statement (PIT-TP or CIT-TP form) for the previous fiscal year, i.e. 2018 if the fiscal year corresponds to the calendar year.
As regards taxpayers obliged to prepare transfer pricing documentation for both 2017 and 2018, the deadlines will be extended with respect to obligations concerning both periods. Based on the new regulations, the extended deadlines apply also to taxpayers whose fiscal year does not correspond to the calendar year (e.g. the fiscal year of 2017 began on April 1st, 2017 and ends March 31st, 2018 or began on July 1st, 2017 and ends on June 30th, 2018).
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 actual 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.
[1] Decree of the Minister of Finance from 15 March 2018 extending the deadlines for the fulfilment of certain obligations related to transfer pricing documentation.
[2] The Minister of Finance published the draft od statement:: https://www.finanse.mf.gov.pl/documents/766655/5896628/4.+Wz%C3%B3r+o%C5%9Bwiadczenia.pdf)
Country-by-Country Reporting
The CbCR 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 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 December 31st, 2015).
According to the actual 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. The new regulation[1] indicates what information should be included in the information about a group of entities.
The tax regulations provide fines for failure to fulfil the aforementioned obligations (maximum amount: PLN 1 mln).
[1] The Decree of the Minister of Economic Development and Finance of 13 June 2017 on the detailed scope of data to be included in the information about a group of entities.
- 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.
The main changes APA regulations (which are effective from 2016) includes 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 1 198) and max. fee PLN 50 000 (approx. EUR 11 987)
- an APA referring to a foreign entity – min. PLN 20 000 (approx. EUR 4 795) and max. PLN 100 000 (EUR 23 975)
- a bilateral or multilateral APA – min. PLN 50 000 (approx. EUR 11 987) and max. PLN 200 000 (approx. EUR 47 951)
Renewal fees are half of the amount of the fee for the renewed APA.
Penalties
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
