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Transfer pricing adjustment – the final version of the explanatory notes of the Ministry of Finance


by Joanna Tomczak

8 June 2021


Amended Corporate Income Tax Act (CIT Act) entered into force on 1 January 2019 bringing a number of changes to transfer pricing laws. One of the most revolutionary changes was new Article 11e added to the CIT Act to govern transfer pricing adjustments between associated enterprises.

What is a transfer pricing adjustment

A transfer pricing adjustment is an adjustment (correction) of transfer pricing understood as a price, fee, profit(loss), financial ratio or otherwise set profit (loss) arising from the terms and conditions agreed between or imposed on associated enterprises as a result of the relationship existing between them. This issue has never been regulated in laws before. As the new regulations raise a lot of doubt among taxable persons, the Ministry of Finance issued on 31 March 2021 explanatory notes on transfer pricing which are supposed to clarify unclear issues and help taxable persons in making transfer pricing adjustments.

When can transfer pricing adjustments be made

According to Article 11e CIT Act, a taxpayer may adjust transfer prices by amending its revenues or tax-deductible costs if the following conditions are met jointly:


  1. the controlled transactions performed by the taxpayer during a tax year were on the terms that would have been agreed between independent entities;
  2. significant circumstances influencing the terms agreed upon during a tax year changed or the actual costs or revenues being the basis for calculating the transfer price became known;
  3. at the time of adjusting the transfer prices, the taxpayer holds a statement from its associated enterprise confirming that the associated enterprise has adjusted the transfer prices for the same amount as the taxpayer;
  4. the associated enterprise referred to above has its place of residence, registered office or management board in the Republic of Poland or in a country or a territory with which the Republic of Poland has concluded a tax treaty and there is a legal basis for the exchange of tax information with that country;
  5. the taxpayer confirms adjusting the transfer prices in its annual tax return for the tax year to which the adjustment refers.


For upward adjustments the first two conditions must be met and for downward adjustments – all five.



Key issues discussed in the explanatory notes

The essence of transfer pricing adjustment

According to the explanatory notes, transfer pricing adjustment consists in making transactions which become inconsistent with the arm’s length principle (although their terms and conditions were originally at arm’s length) consistent with that principle again. A transaction may fall beyond the arm’s length when significant circumstances or the method of calculation of a transfer price changes, e.g. originally it is calculated on the basis of planned costs and then it is adjusted to the actual costs. Transfer pricing adjustment is not an independent (separate) controlled transaction – it is a part of a controlled transaction, a group of controlled transactions or payments between associated enterprises. Furthermore, it concerns past transactions.



The requirement for the transactions made during the year to be at arm’s length

The explanatory notes emphasise the importance of meeting the first condition provided for in Article 11e of the CIT Act, i.e. that the transfer pricing for transactions made during the year between associated enterprises must be at arm's length. It means that before effecting the transaction associated enterprises should agree terms and conditions which would be agreed by independent entities – to the best of their knowledge and using the available comparable data. Do not wait with the arrangements until the end of the year. Furthermore, the explanatory notes say that in order to prove having made the assessment it is worth having a transfer pricing analysis, a transfer pricing policy or a written agreement regulating the terms and conditions of the transaction.



What transactions are not a transfer pricing adjustment

The explanatory notes include examples of transactions which should not be considered transfer pricing adjustments. These are:


  • a change of transfer pricing between associated enterprises for the purposes of a transaction effected in subsequent periods (e.g. an update of price lists for the next period);
  • an accounting error or another obvious mistake;
  • a discount, a rebate, a return of goods;
  • a change of the supplied goods or services, e.g. a supplementary order;
  • complaints regarding quality or quantity;
  • adjustments made by tax administrations.


Adjustments resulting from the above factors should be disclosed on general principles following from the CIT Act.



Frequency of transfer pricing adjustments

According to the explanatory notes, transfer pricing should be adjusted as often as independent enterprises would do it. Furthermore, the frequency should be dependent on:


  • the actual course of the transaction and its circumstances;
  • the behaviour of the transacting parties;
  • the specific nature of a transaction and the payment model;
  • fluctuation of the economic factors affecting the transaction;
  • availability of reliable and objective comparable data.


Furthermore, transfer pricing adjustment should be made before the annual tax return is filed and it should cover a period which is not longer than one fiscal year.



Documenting transfer pricing adjustments

The CIT Act does not say what document should be used to make a transfer pricing adjustment. However, the explanatory notes say that it can be made using:


  • an accounting note;
  • a summary correcting invoic;
  • an invoice correcting a specific invoice.


The relevant documents should be chosen on a case-by-case basis. Furthermore, we can read in the explanatory notes that if the adjustment does not change the fee for specific supplies of goods or services but it concerns the profitability, it is not subject to VAT and should not be documented with a VAT invoice.



Statement on transfer pricing adjustment

A statement of the other associated enterprise in which that enterprise states that it has made an adjustment in the same amount is necessary in the case of a downward adjustment. The CIT Act does not provide details on the form of the statement. The explanatory notes, in turn, say that the statement should be made in writing and it may include, for example:

  • a letter;
  • an e-mail;
  • a letter signed by the employee of the associated enterprise in charge of disclosing the transfer price adjustment.


The explanatory notes stipulate also that if an associated enterprise issues an accounting document underlying a transfer pricing adjustment and provides that document to the taxable person, receiving the document is tantamount to holding the statement. However, if the taxable person issues the document and provides it to the associated enterprise, a separate statement on making a transfer pricing adjustment must be obtained.


If in the case of a downward adjustment the taxable person does not have the statement by the tax return filing deadline, the adjustment cannot be included in the tax return. Because of the pandemic, if a transfer pricing adjustment is made during or for the period of the pandemic, the obligation to hold the statement does not apply.



Non-compliance with Article 11e of the CIT Act

If an upward adjustment must be made but the conditions set forth in Article 11e of the CIT Act are not met, i.e. prices agreed during the year were not at arm's length, the adjustment should be made on general principles. If the conditions stipulated in Article 11e of the CIT Act are not met in the case of a downward adjustment, taxpayers cannot recognise the adjustment under tax-deductible costs and, consequently, cannot account for it on general principles.


The explanatory notes also say that if the adjustment does not result from a significant change of circumstances or from a transfer pricing method based on planned costs, it is not subject to review in terms of the conditions set forth in Article 11e of the CT Act and it should be made on general principles.



Applicability of transfer pricing adjustment regulations

Article 11e of the CIT Act applies to transfer pricing adjustments concerning transactions made after 1 January 2019. In the case of accounting documents issued after 31 December 2018 for transactions performed in the fiscal year commencing before 1 January 2019, they should be considered on the principles following from regulations in the wording valid until the end of 2018.




As the provisions of the CIT Act on transfer pricing adjustments are imprecise and due to the fact that tax authorities’ opinion on the matter differ, the explanatory notes from the Ministry of Finance are very welcome. They address and clarify a lot of issues that have been unclear until now, and allow meaningful conclusions to be drawn by taxable persons, e.g.:


  1. payments made between associated enterprises should be reviewed on a one-by-one and case-by-case basis in terms of considering them a transfer pricing adjustment;
  2. during the year associated enterprises should agree transfer pricing on the terms which would have been agreed by independent entities. This is crucial for making transfer pricing adjustments. Failure to meet the above requirement may make downward adjustments non-tax-deductible and affect the date of recognition of upward adjustments;
  3. the frequency of transfer pricing adjustments should be taken into account so as to avoid significant adjustments at the end of the year. This can also be avoided by setting transfer prices with due care and according to one’s best knowledge at the beginning of the year, before the transaction;
  4. enterprises should remember about additional documentation obligations, i.e. about holding the statement confirming that the other party has made the adjustment in the same amount;
  5. it is worth having a transfer pricing analysis (prepared beforehand), a transfer pricing policy or a written agreement regulating the terms and conditions of the transaction, including transfer pricing adjustments because this affects the legitimacy of making transfer pricing adjustments.


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Joanna Tomczak

Tax adviser (Poland)

Senior Associate

+48 532 540 761

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