The obligation to prepare tax documentation
A local file is mandatory for transactions above the value thresholds:
- PLN 100,000 for transactions with entities from “tax havens”
- PLN 2 million for transactions in property, plant and equipment and financial transactions
- PLN 10 million for service transactions and other
- Thresholds are set separately for each controlled transaction of a homogeneous nature, irrespective of the allocation of transactions to commodity, financial, service or other transactions, as well as separately for the cost and revenue side.
- The new provisions also specify the criteria for assessing the homogeneous nature of a transaction, as well as the way in which its value is determined, for each of the identified types of transaction, this is respectively:
- capital value – for a loan and credit,
- nominal value – for a bond issue,
- guarantee value – for a surety or guarantee,
- value of assigned revenues or costs – for assigning income (loss) to a foreign establishment,
- value “specific to the controlled transaction” for other transactions,
- The provisions also specify that when determining the value of a transactions, the net amounts should be taken into account, and indicate the appropriate basis for determining its value (invoices, contract).
- The documentation obligation does not depend on the level of revenues or costs realized.
The main change is the introduction of transfer pricing analysis (in the form of benchmarking or an analysis demonstrating compatibility of conditions) as a compulsory element of the local file. A transfer pricing analysis needs not be carried out for transactions in loans and low value-added services if their conditions meet statutory criteria, in particular as regards the margin or interest rate applied. Deadline for the preparation of the local file - 9 months after the end of the tax year.
The obligation to prepare the local transfer pricing file does not apply to controlled transactions concluded exclusively by related entities having their place of residence, registered office or management in the territory of Poland in a tax year in which each of these related entities meets all of the following conditions:
- does not benefit from the subjective exemption from corporate income tax,
- does not benefit from income tax exemption for income from activities covered by the SEZ Permit/ Support Decision,
- incurred no tax loss.
Related entities consolidated using the full or proportional method which are obliged to prepare the local file, attach group transfer pricing documentation to this documentation if they belong to a group of related entities whose consolidated revenues exceeded PLN 200 million in the previous financial year.
- Introducing the possibility of using documentation prepared by another entity from the group, including documentation prepared in English.
- The translation into Polish should be presented only upon request of the tax authorities, within 30 days from the date of delivery of the request.
Deadline for the preparation of the master file - 12 months after the end of the tax year.
Within 9 months after the end of the tax year, a statement on the preparation of transfer pricing documentation as well as information on transfer pricing for which a new form is to be submitted only in electronic form (TP-R) replacing the existing PIT-TP and CIT-TP forms, should also be submitted.
Rules for the estimation and adjustment of costs
- Related entities are required to set transfer pricing on terms and conditions that would be agreed between unrelated entities.
- If they fail to do so or if, in the opinion of the authority, their transaction would not have been concluded by rational independent entities, the authority determines the taxpayer's income by way of an estimate.
- Applying the most appropriate method: comparable uncontrolled price, cost plus, resale price, transactional net margin, profit split, where appropriate, other methods, including valuation techniques. However, the method adopted by the taxpayer should be applied first.
- Safe harbor – no estimation by authorities for transactions involving low value-added services, subject to certain conditions.
- Under certain conditions, costs and revenues may be adjusted if a change in material circumstances during the tax year had an impact on the result of the controlled transaction in which market conditions were originally established. In practice, such adjustments (TP adjustment, true-up) are applied in international groups of companies, in particular when settling intra-group service flows. The tax consequences of such adjustments have so far raised many doubts among Polish taxpayers.
Before 1 January 2019: Increased CIT rate of 50% applied to the amount of the difference between the income declared by the taxpayer and that determined by the tax authority.
After 1 January 2019:
- 10% of the amount adjusted upwards,
- 20% of the amount adjusted upwards, where:
- the basis for establishing an additional liability exceeds PLN 15,000,000 - to the extent of the surplus over this amount;
- 10 years have not elapsed since the end of the calendar year in which the final decision with the use of regulations and means was served,
- the party has not submitted transfer pricing documentation to the tax authority,
3.30% the party has not submitted transfer pricing documentation to the tax authority.
- According to the wording of interim provisions, when preparing documentation for a tax year commencing after 31 December 2017, taxpayers may apply the existing provisions on the basis of which documentation for a tax year commencing after 31 December 2016 or the amended provisions were prepared. The choice of applicable regulations must be applicable to all controlled transactions during the period.
- In connection with the change of regulations, it is necessary to examine which legal regulations are more beneficial for the company. If you are planning a transfer pricing adjustment, we recommend that you analyze its effects in accordance with the new provisions.