Some curiosities about Polish transfer pricing obligations

I am not going to go through detailed and maybe a little bit boring transfer pricing regulations in Poland. Even though I could write a book about them since there are so many of them. Instead, let me introduce you to some curiosities about transfer pricing regulations in Poland. I hope they will interest you!

Multinational companies that are familiar with transfer pricing (TP) issues in their countries might raise their eyebrows over the kinds of transactions that are subject to the arm’s-length rule in Poland.

‘Transaction’ – what does it actually mean

In Poland, only ‘controlled transactions’ are under the TP regime. However, the TP regulations do not define what a controlled transaction is. This causes many uncertainties and problems for taxpayers, who are unable to identify obligations in the field of TP. Variable case law and interpretation offer no help.

According to the tax authorities, the concept of a transaction cannot be understood only as an operation of purchase or sale of goods and services. A transaction should be understood broadly: as an economic activity performed by related parties.

The General Interpretation issued by the Minister of Finance in 2021 confirmed that a controlled transaction means activities of an economic nature identified on the basis of the behavior of the parties (including attribution of income to a foreign establishment), the conditions of which have been established or imposed as a result of relationships.

The phrase “established or imposed as a result of relationships” does not mean that the transactions must be directly performed by related parties. The idea is that the relationships influenced the determination of the content of the activities. Therefore, it is perfectly possible that the terms of a transaction may be set or imposed by a related entity that is not directly a transacting party.

A common example is a purchasing center that negotiates the prices of services and products purchased from independent entities by companies belonging to the group. Such a transaction can also be treated as a controlled one subject to TP regulations! This is surprising because the transaction is made between unrelated parties, while the purchasing center cares about reducing the costs of the entire group by leveraging on the economies of scale.

Unusual transactions covered by Polish TP regulations

Usually, TP regulations apply to service, goods, and financial transactions made between related entities. But that’s not all. I listed below some examples of transactions that must also be analyzed in terms of the documentation obligation:

  • Free-of-charge services such as granting free guarantees;
  • Services performed or received without remuneration for related entities; or
  • Making available a trademark without remuneration.

Taxpayers must also define TP obligations for capital transactions such as mergers, acquisitions, exchange of shares, redemption of shares, increase of share capital, and joint venture agreements. All of them are subject to the arm’s-length principle and should be documented to prove the business nature of the transaction and to justify that third parties would make such a transaction on comparable terms.

If the company was the subject of restructuring of the group’s operations (transfer of significant functions, assets, risks between related parties), then adequate remuneration for the transfer of profit potential may be required.

On top of the need to prepare a local file along with the TP analysis, such a transaction is reported in detail using the TPR form. 

Unrelated parties (!) but still transfer pricing issue – transactions with tax havens

TP regulations usually apply to transactions between related entities. However, there is a very specific exemption in Poland: transactions with third parties from tax havens.

Once a specific materiality threshold for such a transaction is exceeded, a respective local file must be compiled to prove the business justification of the transaction. Currently, the materiality threshold for direct tax havens transactions is PLN 2.5 million (about EUR 500,000) in the case of financial transactions and up to PLN 500,000 (about EUR 100,000) for non-financial transactions. Transactions made with tax havens also must be reported with the tax office using the TPR form.

 

If you wish to learn more – I will be more than happy to answer your questions.

Magdalena Dymkowska,
Partner, MDDP
E: [email protected]