Not only the median is arm’s length – a Polish case study


The Polish Administrative Court found that tax authorities wrongly questioned the results of the taxpayer’s benchmarking analysis. Read more to get the Polish perspective.


A Polish company from a group of related entities provided cigarette production services based on materials entrusted to a UK-based related entity, which was the main source of the company’s revenue. The company’s remuneration for the production services provided was determined on the basis of the cost base plus a 10% mark-up. In 2015, the company incurred costs exceeding the realized revenues and reported a loss in the CIT return.

The opinion of the authorities

The proceedings were long and the tax authorities could not decide what exactly to challenge. In the end, they questioned the benchmarking analysis prepared by the company and made its own analysis based on data from the ORBIS database. In it, the company’s market income from the transaction was estimated based on the median from the conducted analysis at 28.83%. However, the appellate body stated that the result adopted by the first instance body required correction. Finally, the company’s income was estimated using a median mark-up of 12.34% based on the analysis prepared by the company. The tax was estimated at PLN 192,000 PLN instead of the reported loss.

Taxpayer’s position

The company did not agree with the decision of the authorities and appealed against it to the administrative court. It argued in particular that, according to the calculations of the tax office revealed in the decision, the lower quartile obtained as part of the analysis of the range is 7.55%. According to the company, this means that at least 25% of unrelated entities apply a mark-up lower than 7.55%. In the company’s opinion, there are no grounds for the authorities to arbitrarily state that the market mark-up is only the median of the range from the analysis. The mark-up level considered to be arm’s length is between the lower quartile and the upper quartile.

The position of the court

The court accepted the company’s complaint. It stated that during the inspection and subsequent proceedings, the findings of the authorities changed or were contradictory. At the same time, the authorities struggled with preparing their own analysis and correctly calculating the results which should not burden the taxpayer.


Despite long-term control and tax proceedings, the authorities failed to clearly demonstrate and prove that due to the transfer prices used the taxpayer committed tax fraud consisting in underestimating the income from the transaction and thus the tax.

A loss incurred by the company does not automatically mean that the terms of transactions with a related entity are non-arm’s length. In addition, there are no grounds to consider only the median of the analysis range as the market level of remuneration. The OECD Guidelines, recommendations of the Transfer Pricing Forum and well-established practice all state that each point from the interquartile range can be considered arm’s length. The court rightly agreed with the taxpayer and discontinued the proceedings.

I am very curious if tax authorities in your countries also question the accepted point from the interquartile range? Is the median the only safe point?

Magdalena Marciniak,
Partner and Shareholder in MDDP,
E: [email protected]