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Adjustment of prices of specific goods and services outside the scope of transfer pricing adjustment


by Aleksandra Galczak

23 July  2020


Article 11e of the CIT Act lays down the conditions for transfer pricing adjustments. In accordance with the advance tax ruling issued by the Head of the National Tax Information Service, adjustments made during the tax year to prices of goods involved in transactions between associated enterprises are not subject to the principles of Article 11e of the CIT Act (25 June 2020, ref. no. 0114-KDIP2-2.4010.111.2020.2.RK).

According to OECD guidelines, adjustments made to eliminate transfer pricing problems can be classified into two main categories:


  1. adjustments made by the tax administration after the tax return is filed; these adjustments can comprise primary adjustments, corresponding adjustments and secondary adjustments; and
  2. adjustments made voluntarily by the taxpayer (usually before the tax return is filed), known as compensating adjustments.


Compensating adjustment - definition

It is assumed that the transfer price adjustment referred to in Article 11e of the CIT Act is the so-called compensating adjustment. The OECD guidelines define a compensating adjustment as an adjustment in which the taxpayer reports a transfer price for tax purposes that is, in the taxpayer's opinion, an arm's length price for a controlled transaction, even though this price differs from the amount actually charged between the associated enterprises. A transfer price is understood as an outcome of financial relations in a transaction, including a price, remuneration, financial result or financial indicator. An arm's length financial result means a financial result that independent enterprises with a comparable functional profile would have achieved in comparable circumstances.

The purpose of a transfer pricing adjustment is to ensure that payments between associated enterprises are in line with the arm's length principle. Such an adjustment is made if significant circumstances change and the original payments were not at arm’s length.

Advance tax ruling – explanation

In the presented case, the adjustment made by associated enterprises during the tax year resulted from a reduction in prices by an external supplier. The price reduction in this case was intended to directly reflect the conditions agreed with the independent enterprise. Consequently, it was assumed that the adjustments made were not the result of conditions imposed or agreed upon by the associated enterprise, but the result of the price reduction applied by the independent enterprise. Therefore, they did not fall under Article 11e of the CIT Act.
The purpose of the adjustment made between associated enterprises was not to bring payments as part of controlled transactions into line with the arm’s length principle (as the original payments were arm's length), but the adjustment rather resulted from a reduction in the price of selected goods by an external supplier (e.g. due to discounts or compensation for product returns).
It was concluded that the adjustment mechanism applied due to the discounting was an adjustment to the goods’ sales prices, rather than a mechanism to align the profitability of all sales transactions made by the enterprise in the accounting period. On the other hand, the adjustment mechanism applied due to the compensation for product returns is also not made to bring a non-arm's length price into line with the arm’s length principle, but to adjust a price due to the volume of ordered goods.
Rödl & Partner advisers will be happy to review in detail your dealings with associated enterprises to evaluate the correctness of the adopted transfer pricing policy and internal rules for adjustments to transactions between associated enterprises. As part of tax advisory services they are also ready to support you in adapting the transfer pricing policy related to contracts to new laws.


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Dominika Tyczka-Szyda

Tax adviser (Poland)


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