New Transfer Pricing regulations in Poland
Starting from January 2017 amended regulations with respect to transfer prices entered into force. These rules impose multiple new obligations on the taxpayers who execute transactions with related parties (exceeding statutory thresholds). 2017 is the first year which should be documented according to the new regulations. The deadline for fulfilling new obligations expires, as a rule, on the date for submitting the annual tax declaration (end of third month following given tax year). However, for the documentation of 2017 and 2019 the deadline is postponed until ninth month following the tax year.
Until 2017 Polish regulations required only local file to be prepared for qualified transactions. There was no filing obligations, documentation was presented to the tax authorities upon request. In the case when taxpayer was unable to satisfy such request and transaction was not compliant with arm’s length principle additional tax was calculated according to the penalty 50% CIT rate.
After 2017 discussed obligations are significantly extended. Under new regulations, qualified taxpayers should prepare the documentation for the transactions with related parties which has significant impact on reported profit or loss.
Qualified entity is a taxpayer who reported in the previous year at least EUR 2m of revenues or costs. Volume of the transaction which is considered as having significant impact is set at the level of EUR 50k and is growing gradually with reported revenues or costs.
The obligation depends on the level of reported revenues or costs, the taxpayer with revenues or costs from EUR 2m to EUR 10m will be required only to prepare a local file. At the level between EUR 10m to EUR 20m obligation comprises of local file, benchmarking study and special CIT-TP report filed with the tax authorities. Entities exceeding the threshold of EUR 20m has to prepare additionally master file disclosing inter alia group transfer pricing policy, structure and functions allocated across the group. For the biggest taxpayer with consolidated revenues above EUR 750m there is also so called country by country reporting obligation – simplified report disclosing revenues and costs reported by the companies from group.
Based on the new regulations obligation lasts for two years, therefore in the case when threshold is reached for 2017 (based on the revenues or costs of 2016) also 2018 must be documented.
There is also a specific regulation allowing the tax authorities to oblige the taxpayer to prepare the documentation even in the case when materiality level and transfer pricing threshold is not reached. Such possibility exist when there are circumstances suggesting that given related party transaction is not compliant with arm’s length principle, in this case deadline for presenting the documentation is 30 days.
When establishing scope of the transfer pricing obligation key challenge is to determine whether given transaction
should be perceived as material (having significant impact on the profit and loss of the taxpayer).
As material transaction should be treated primarily those transactions or other events of one kind, the total value of
which exceeds in the tax year the equivalent of:
- For the entities reporting revenues and costs between EUR 2m and EUR 20m materiality is EUR 50k plus EUR 5k for each m above EUR 2m.
- In the range between EUR 20m and EUR 100m materiality level should be calculated as EUR 140k plus EUR 45k for each EUR 10m above EUR 20m.
- For the taxpayers exceeding EUR 100m materiality level is EUR 500k.
This threshold should be applied to the transactions of one kind. Taxpayers still have difficulty in determining
how the value of transaction or event of one kind should be established. Due to numerous doubts, on January
24st, 2018, a general ruling was issued by the Minister of Finance, referring to the manner of determining the value
and definition of transactions and other events of one kind.
According to the view presented by the Minister of Finance, the threshold of the transaction value or other event, specified in the regulations should be referred separately to each kind of transaction or each kind of other events taking place in relations with the entity.
This threshold should not be referred separately to each transaction and any other event. In practice, this means that if the taxpayer has concluded several transactions or there are several events, each of which is separately below the materiality threshold, he may still be required to prepare documentation for them – in a situation where, after adding up the value of transactions (events) of the same type, the sum exceeds the set thresholds.
A very important conclusion resulting from the ruling of the Minister of Finance concerns cases where transactions of the same type are concluded or other events of the same type occur, but with various related entities. In such a situation, the threshold should be related to the sum of transactions (events) of one kind concluded with all related entities. This is a different view from that presented so far by tax authorities, which suggested that excess of the thresholds should be verified only with a given entity.
However, despite the above-mentioned general ruling, it is still problematic to determine what should be understood under the term “transactions or other events of one kind”. Should this phrase be referred to the division into merchandise, service, financial and low value-added transactions? Or maybe transactions should be analyzed at a higher level of detail and additionally divided into sales and purchase transactions? Or maybe it is necessary to distinguish specific types of transactions and other types of events and instead of classifying them as financial transactions, the threshold value required to prepare a documentation should be referred separately to individual financial transactions, such as a loan, bank account, sale of derivatives. Tax rulings do not indicate clearly the correct answer. It depends in each case on the types of transactions (or other events) concluded by the taxpayer.
The general ruling also refers to the issue of generic grouping, but it does not give sufficiently clear answers.
According to the standpoint of the Minister of Finance, in order to aggregate particular transactions or other events
as part of one type, transaction parameters relevant for transfer pricing should be taken into account, e.g. key
functions performed, assets involved, risks borne, the method of price calculation or material terms of payment.
Only after taking into account these parameters, it is possible to distinguish the types of transactions (or other events) taking place within the activity of a taxpayer and verify if they are subject to the documentary obligation.
Above discussed aspect is only one example of controversial and difficult aspect which forces the tax authorities to issue general tax ruling. New regulations still require further amendments and official interpretations of Ministry of Finance. Nonetheless deadline for preparation of first documentation falls at the of September 2018.