Consultations of the Ministry of Finance concerning due care procedure for transfer pricing

by Joanna Bielecka and Mateusz Żyła

26 April 2021

Rödl & Partner experts took part in consultations conducted by the Ministry of Finance (MF) concerning new transfer pricing obligations.

Our team has filed objections to the draft explanatory notes on the presumption and due care as regards reviewing settlements with an entity from a tax haven.

Transfer pricing documentation and settlement of accounts with an entity from a tax haven

Following the change of transfer pricing regulations, CIT and PIT taxpayers have been additionally obliged to prepare transfer pricing documentation of transactions made with associated or independent enterprises and exceeding 500 thousand zloty if the beneficial owner of the payment has its registered office in a tax haven.

Following the presumption introduced in Article 11o(1b) of the CIT Act (Article 23za(1b) of the PIT Act), the beneficial owner of the payment is based in a tax haven if the contracting party of the taxpayer settles accounts (makes transactions) with an entity from a tax haven.

To rebut that presumption the taxpayer has to prove that its contracting party did not make any settlements with an entity from a tax haven. Due care should be exercised in establishing these circumstances. This means that every time the taxpayer makes a transaction exceeding 500 thousand zloty with an associated or independent entity he should check whether his contracting party has settled accounts with an entity from a tax haven. If the taxpayer fails to check this or finds out that his contracting party has made such settlements, he will be obliged to prepare transfer pricing documentation of transactions with this contracting party exceeding 500 thousand zloty.

Opinion of Rödl & Partner experts

In their objections to the explanatory notes, Rödl & Partner experts have pointed to e.g. the following:

• unclear principles of determining the above-mentioned threshold of 500 thousand zloty, which if exceeded, triggers the obligation to apply the new regulations;
• no threshold for settlements made between the taxpayer's contracting party and the entity from a tax haven.

As a result, even the smallest transaction made between the taxpayer's contracting party and a tax haven resident requires the compliance with the new regulations.

The explanatory notes do not specify how the presumption that an entity from a tax haven is a beneficial owner may be rebutted – apart from referring to a statement filled out by the contracting party. Neither do they say what the taxpayer should do if he cannot obtain such a statement from the contracting party, including from an independent enterprise. The taxpayer cannot demand that the contracting party signs a statement which it has no legal obligation to sign.

Rödl & Partner experts have also pointed out that the Ministry of Finance did not explain the meaning of the unclear and very broad term "due care" and what the taxpayer should do to avoid being charged of failing to exercise due care.

Rödl & Partner experts hope that the Ministry of Finance will take into account the objections filed by Rödl & Partner and other taxpayers and consulting firms. It is expected that the Transfer Pricing Forum will issue its opinion on this issue as well.

Rödl & Partner experts will keep you updated on the progress in the legislative work in this area.