Planned changes to transfer pricing

 

The bill contains regulations concerning, among others, transfer pricing obligations.

The planned changes in the transfer pricing refer mainly to transactions made with entities from countries practising harmful tax competition (tax havens). The bill extends the list of transactions which have to be verified for compliance with the arm's length principle. According to the bill, this will be the case whenever non-controlled transactions are made with an entity:

 

This means that the obligation to prepare transfer pricing documentation will apply to taxable persons and partnerships which perform non-controlled transactions with an entity from a tax haven if the transaction value for a given tax year (in the case of partnerships – for a financial year) exceeds PLN 100 thousand, irrespective of the type of transaction. The same threshold applies to controlled transactions. The regulations will also apply to taxable persons whenever the payments under transactions go to a beneficial owner who is a tax resident in a tax haven. In this case the threshold amounts to PLN 500 thousand. This means that the taxable person is obliged to check – as part of the transactions with its contracting parties – whether the beneficial owner is a tax resident of a tax haven. In doing this the taxable person or partnership must exercise due care.

The documentation obligation will cover not only the payment to an entity from a tax haven and the conclusion of a partnership agreement or a joint venture agreement but also sales transactions and other controlled and uncontrolled transactions, also if it is the beneficial owner rather than the taxable person's contracting party who is a tax resident in a tax haven.

Transfer pricing documentation covering non-controlled transactions made with an entity from a tax haven must include additionally the so-called benefit test, i.e. the economic justification of the transaction, in particular, the description of the expected economic benefits, including tax benefits.

In addition, as part of the steps taken to prevent and combat COVID-19, the bill also contains regulations aimed to reduce administrative burden imposed on taxable persons in connection with transfer pricing. The first step is to release taxable persons who make transfer pricing adjustments reducing revenues or increasing expenses (downward adjustment) from the obligation to hold a statement in which the associated enterprise confirms that it has adjusted the transfer prices for the same amount as the taxable person has adjusted them. If the taxable person does not hold such a statement, the adjustment of transfer prices will be nevertheless taken into account when determining the revenues and tax-deductible costs. The said release should cover exclusively adjustments made for a tax year or during the state of epidemic emergency or the state of epidemic announced due to COVID-19 in the Republic of Poland. As stipulated in the explanatory memorandum to the bill, the release applies not only to annual but also to more frequent adjustments.

Another proposed solution is to release entities which have incurred tax losses and make transactions with an associated enterprise resident for tax purposes in Poland from the obligation to prepare transfer pricing documentation. If the revenues of taxable persons in the tax year starting after 31 December 2019, in which the state of epidemic emergency or the state of epidemic announced due to COVID-19 was in force in Poland, dropped by at least 50% compared with the total revenues generated in the similar period directly preceding this year, they will not have to prepare transfer pricing documentation. In such a case the entity will be released from the obligation to prepare the documentation but will be still obliged to file the electronic TP-R form with the Head of the National Tax Administration.

The bill addresses also statements on preparing the local file and applying arm's length prices, filed for a tax or financial year or during the state of epidemic emergency or the state of emergency announced due to COVID-19 in Poland. This means that the changes should apply from the beginning of the epidemic, i.e. they apply to statements filed in this period and for this period. In such a case the statement can be signed by:

 

The statement may still not be made by an attorney.

Summing up, if the amendments enter into force, this may reduce the administrative burdens imposed on taxable persons in connection with transfer pricing during the state of epidemic emergency or the state of epidemic announced due to COVID-19. Additional documentation obligations cannot be avoided by entities making transactions with tax residents of tax havens.