Meet The Members Europe – Transfer pricing: the key issues in Poland

Categories:

Key issues

Regulations on transferring income between related parties have existed for a long time in Polish tax law. However, transfer pricing matters have gained importance in Poland relatively recently. Even though Polish transfer pricing regulations are aligned with the OECD Guidelines, they are at the same time highly detailed. Simply relying on the OECD Guidelines in Poland is not enough. Thus, there are separate and local requirements in place, and ignoring them may trigger TP risks. Given the number of legal regulations applicable, fulfilling all TP obligations in Poland may prove quite challenging.

How to fulfil transfer pricing obligations: The ABC of a Polish Taxpayer

The first step is to identify the relationship that exists between entities engaging in transactions. Whenever the relationships are not obvious, the so-called ‘significant influence of one entity on another’ must be verified. The legislator has defined areas of significant influence, so entities may be related when, for example, one of them holds a minimum of 25% of all shares in the other. Moreover, the significant influence may also be between spouses, relatives, and affinities to the second degree. Affiliations are also formed by unincorporated companies and their partners, or the taxpayer and its permanent establishment.

The next step is to verify whether the transactions made with a related party exceeded the documentation threshold. This is where Polish regulations are of use since they introduce the exact amounts: PLN 10,000,000 (for financial transactions) and PLN 2,000,000 (for service and other transactions). These thresholds should be determined for transactions of a homogeneous nature. This means that the obligations may apply to transactions between more than 2 entities, where – although each transaction separately is not subject to the documentation obligation – their total sum exceeds the threshold.

“Whenever the relationships are not obvious, the so-called ‘significant influence of one entity on another’ must be verified.”

Is documentation enough? Not necessarily.

There are certain obligations associated with transfer pricing in Poland, such as preparing local transfer pricing documentation (the Local File). Nevertheless, the Local File is not enough – almost every piece of documentation must include a benchmarking study that verifies comparable market transactions and confirm that the price established in the transaction corresponds to market prices.

Last but not least, there is also the need to have group documentation (the Master File). It applies when the cumulative revenues of a group of related parties exceeded PLN 200 million (or equivalent) in the previous fiscal year.

Be aware that the Master File received from another group company must always be reviewed for compliance with the requirements stated in Polish regulations. In each case, it is the taxpayer who is responsible for the Master File’s compliance with Polish law, even if it has been prepared by another group entity.

Further details

Exceeding the materiality threshold also triggers the obligation to prepare a TP-R form. It is a highly detailed statement and requires specific information about transactions.

Data from the TP-R is used when selecting entities for tax checks.

The TP-R form requires a wide range of detailed information on the entity’s financial position, the type and value of controlled transactions, information on the prices or profitability of transactions, transfer pricing verification methods and benchmarking study results, etc.

“The need to prepare transfer pricing documentation is not only applicable to transactions where goods and services are exchanged.”

Unusual Transactions

The need to prepare transfer pricing documentation is not only applicable to transactions where goods and services are exchanged. It may also be necessary for most economic activities in which related parties are involved. An example of a transaction that requires related parties to prepare the relevant transfer pricing documentation is business restructuring. Mergers, division or acquisition of companies, share capital increases or other transactions involving shares, stocks and other participation rights may give rise to transfer pricing obligations as well.

These examples best illustrate that the concept of a controlled transaction is not limited to events of a repetitive nature. Business restructuring is a one-off event, yet it involves a series of actions of a legal and factual nature and so qualifies as an economic activity.

Also, be aware that remuneration itself is not a prerequisite for a transaction between entities to be subject to documentation obligations – the transfer of gratuitous consideration to a related party qualifies as a controlled transaction. A common example is a no-fee guarantee or the granting of a license for the use of a trademark with no fee. Consequently, despite the lack of a price, this transaction requires transfer pricing documentation.

DOs AND DON’Ts when entering into related-party transactions in Poland

Meeting TP obligations in Poland is extremely important since these transactions are checked and tax authorities can easily find entities in need of inspection.

Since possible irregularities uncovered in a tax check may involve severe sanctions, it is of paramount importance to have documentation prepared completely. It should prove beyond any doubt that the transaction made in the tax year with a related party was in line with the arm’s length principle.

Taxpayers must pay special attention to identify the business events performed correctly and in detail. This is because in practice each business activity they undertake may be examined in terms of documentation obligations.