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Transfer pricing adjustment

by Anna Rucińska

27 November 2023

As the end of the year is nearing, the issue of transfer pricing adjustment among associated enterprises is worth exploring.

Although transfer pricing adjustment laws have been incorporated into the CIT and PIT Acts for several years now, they still raise doubts as to how such adjustments should be documented and correctly recognised for tax purposes.

What is a transfer pricing adjustment?

As a rule, taxpayers should set transfer prices at arm's length on an ongoing basis throughout the tax year. The essence of a transfer pricing adjustment is to adjust transaction prices for an accounting period to comply with the arm's length principle.

A taxpayer may adjust transfer prices by amending its revenues or tax-deductible expenses if all of the following conditions are met:

the terms and conditions agreed during a tax year for a controlled transaction should correspond to those agreed between independent parties,
material circumstances affecting the terms and conditions agreed during a tax year have changed or the taxpayer has become aware of the costs actually incurred / revenues earned during the year which are the basis for transfer pricing and an adjustment is required to bring the transfer price in line with the arm's length price,
at the time of the adjustment, the taxpayer receives a statement or another document confirming that, in the context of the controlled transaction, the associated enterprise has made an adjustment in the same amount as the taxpayer,
there is a legal basis for the exchange of information between countries of the controlled companies.

The law is not clear on how often transfer prices should be adjusted. In its explanatory notes, the Ministry of Finance clarifies that adjustments should be made as often as independent enterprises would make them. Furthermore, transfer pricing adjustment should be made before the annual tax return is filed and it should cover a period not longer than one tax year.

An adjustment qualifies as a transfer pricing adjustment at the moment it is recognised for tax purposes. Hence, it is important to correctly qualify an adjustment as a transfer pricing adjustment.

Transfer pricing adjustment in the context of VAT

Unlike income tax laws, the VAT Act does not contain any specific provisions on transfer pricing adjustments. Guidance on accounting for transfer pricing adjustments for VAT purposes is provided by advance tax rulings. However, they do not provide a clear answer to the question of whether and how to account for transfer pricing adjustments in specific cases. Such adjustments may be treated as:

made outside the scope of VAT,
an adjustment to the prices of earlier transactions, within the scope of VAT,
a separate transaction subject to VAT.

The Ministry of Finance has provided a series of interpretations and clarifications of transfer pricing adjustments but they still raise many doubts among taxpayers. You should also remember that the issue of transfer pricing adjustments must be analysed not only in terms of CIT/PIT, but also in terms of VAT.

If you have any specific questions about transfer pricing adjustments, you are welcome to contact Rödl & Partner experts.

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Dominika Tyczka-Szyda

Tax adviser (Poland)

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