Basic transfer-pricing compliance obligations
Transfer pricing is one of the focal points of taxation in Poland. The arm’s-length principle underlying transfer pricing requires related parties to provide products, services or loans to each other on terms that would have been agreed upon between independent parties. When they follow the arm’s-length principle, taxable profits recorded by each party will not be distorted by their membership in the same capital group. The arm’s-length principle must not only be followed, but also be clearly seen to be followed and this comes at the cost of compliance efforts. In this respect, three issues will be analysed below: basic compliance obligations, selected peculiarities of Polish regulations, and transfer pricing documentation for a group of companies.
Basic compliance obligations for transfer pricing include three items. For most taxpayers, each must be completed by the end of this year.
Firstly, taxpayers must prepare documentation describing most cross-border transactions and some domestic transactions if their value exceeds ten million zlotys for the supply of goods or financing, or two million zlotys for services and other transactions. The description must include general information about the substance of a transaction and an economic analysis proving that it is consistent with market realities.
Secondly, the taxpayer should complete and file an appropriate tax return with the National Revenue Administration. It includes basic information about the transaction and financial performance of the enterprise.
Thirdly, the taxpayer is obliged to file a statement with a relevant tax office declaring that the local file was completed and that prices were set at an arm’s length.
The official statement can only be signed by specific persons – for companies, their management board members. It is particularly important due to the fact that a false statement or late filing is subject to criminal liability. Clearly, management board members are responsible for overseeing compliance with transfer pricing obligations.
It should be highlighted that reliance on patterns is not enough in a dynamically evolving tax environment. For instance, it is quite easy in Poland to fall under the obligation to prepare a local file for transactions with related enterprises. An obligation to prepare a local file may also arise in the case of a transaction worth over one hundred thousand zlotys with an entity located in a tax haven. In some cases it may also be necessary to prepare a local file for a transaction with an unrelated party not located in a tax haven.
As regards indirect transactions with tax havens, starting from 2021, for transactions worth over half a million zlotys, there will be a need to take additional steps to exclude the possibility that the ultimate beneficiary of the transaction is located in a tax haven. Otherwise, the transaction may need to be covered by a local file as an “indirect transaction with a tax haven.” Taxpayers are expected to request their counterparties to disclose dealings with entities in tax havens, as well as their nature. Obtaining such information could certainly be a problem. Additionally, there is a rebuttable presumption that a transaction took place with a tax haven if the counterparty merely dealt with an entity located in a tax haven.
In addition to a local file, taxpayers may be required to prepare a “master file.” Such file includes information on the entity preparing a local file and the group of companies to which it belongs. It contains much detail on group business and its policy on intercompany transactions. Two elements jointly trigger the obligation to prepare a master file: consolidation of financial statements, and generation of consolidated annual revenue exceeding two hundred million zlotys. According to a proposed law, failure to complete a master file will be subject to criminal fiscal liability. Individuals may be punished with a fine of up to almost thirty million Polish zlotys.
Wojciech Marszałkowski, adwokat, Tax practice, Wardyński & Partners
The content of this article is a part of Episode 9 of the programme News from Poland – Business & Law. You can watch the episode here >>>
