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Transfer Pricing Forum on restructuring among associated enterprises


by Joanna Tomczak and Jakub Zawadzki

17 April 2020

The Transfer Pricing Forum (TPF) published on 3 March 2020 its recommendations on the interpretation and application of provisions on restructuring among associated enterprises. The recommendations include numerous tips which may prove helpful in the application of the regulation of 21 December 2018 on transfer pricing in respect of corporate income tax (“TP regulation”).

The TPF’s recommendations are not legally binding but they serve as guidelines for taxpayers and tax authorities. The TPF’s recommendations on the restructuring cover the following four key areas:


  • definition of restructuring;
  • examination if a restructuring fee is justified;
  • fee valuation method;
  • documentation of restructuring.


Additionally, the TPF’s recommendations contain practical examples from each area.



Compared to the definition of restructuring included in the TP regulation, the TPF’s recommendations refine and describe in more detail the scope and grounds for restructuring. Above all, they indicate that a set of conditions must be met jointly to meet the restructuring criteria, i.e. commercial or financial relations have to change significantly (involving a transfer of functions, assets and risks among associated enterprises) and the expected average annual EBIT over has to change by at least 20% over a three-year period. The TPF’s recommendations clear out doubts as to the calculation of the ratio by stipulating that it should be counted for a three-year period after the year of restructuring. If the restructuring process lasts more than a year, decisive for EBIT is the date on which the new accounting model affecting the EBIT level is introduced.

Moreover, the TPF’s recommendations explain that EBIT should be based on the financial figures calculated according to the Polish accounting standards (unless the parties are obliged to follow IAS/IFRS). Importantly, the change in EBIT should be examined on the basis of financial figures as of the restructuring date. The regulations do not oblige the taxpayer to assess and check if the figures differ from actual data. Be mindful, however, that tax authorities may check the reliability and accuracy of the assumptions made for the forecasts. Therefore, we recommend documenting the forecasts so that they can be independently verified and calculated.

What does and what does not qualify as a restructuring process

In addition to the refined definition of the restructuring, the TPF’s recommendation include samples of what is and what is not a restructuring process in the meaning of the TP regulation. Importantly, the list of cases described in the TPF's recommendation includes examples only and is not complete. Every situation must be examined on a case-by-case basis. 

Arrangements which fit the definition of restructuring according to the TP regulation include, without limitation:


  • conversion of a full-risk distributor into a low-risk distributor, agent, commission agent, marketing or sales support provider;
  • termination of agreement or contract which involves the transfer of significant functions, risks or assets or conclusion of another agreement or contract by another group member;
  • close-down of manufacturing (part of manufacturing) in one associated enterprise and launch of the same manufacturing in another associated enterprise;
  • transfer or concentration of functions in a regional or central entity at the same time limiting the functions of local entities as regards e.g. purchases, sales support, supply chain management;
  • transfer of assets which are then made available, leased or licensed back;
  • sale or in-kind contribution of an enterprise or organised part of an enterprise;
  • transfer of a loss-making business activity.


Arrangements which do not fit the definition of restructuring according to the TP regulation include, without limitation:


  • amendments to the TP policy, accounting methods without reorganisation (i.e. significant change of the accounting method and profit(loss) with no accompanying transfer of functions, assets or risks);
  • standard expiry of a contract the expiry and end date of which have been known in advance and set in accordance with the arm's length principle, e.g. a construction contract;
  • liquidation of a company or branch office or formation of a new company or branch office if it is not accompanied by reorganisation which involves take-over of functions, risks or assets in other entities;
  • change of legal form, merger or demerger of companies governed by separate regulations of the Corporate Income Tax Act.


Assessment of compliance of the restructuring terms with the arm’s length principle

The TPF’s recommendations also clarify the doubts which arise in assessment of compliance between the terms of restructuring set by associated enterprises and the terms which independent enterprises would agree as referred to in chapter 4 of the TP regulation, and the resulting grounds for the introduction of the fee for the restructuring and the calculation methods.

Whenever a case fits the definition of restructuring, the assessment whether its terms comply with the arm’s length principle should follow the below guidelines set out in chapter 4 of the TP regulation.

  • identification of commercial and financial relations between associated enterprises before and after the restructuring process, including correct identification of actual transactions that make up the restructuring, examination of economic reasons and benefits, examination of options realistically available to the associated enterprises.

The TPF explains that the actual transactions which make up the restructuring process should be identified in the first place by reviewing the documentation underlying the transaction, i.e. written contracts, agreements and other documents, including transfer pricing documentation, as well as actual events and conduct of the parties. Such an examination helps to work out a functional analysis (e.g. functions performed, assets used and risks incurred) as well as its modifications before and after the restructuring.  This helps to identify the scope of the transfer and the subject matter of the transactions which make up the restructuring process. What matters is that parties should be assigned certain functions, assets and risks on the basis of their actual ability to perform, use or incur them. In other words, you should check the actual resources necessary to perform the functions and assess the significance of risks and their materialisation, the financial capabilities of the parties, their ability to make independent decisions and their professional competences. Moreover, the TPF’s recommendations include a sample list of reasons for restructuring, which may apply to specific entities or the entire group (i.e. synergy). They emphasise that the reasons should matter for determining a fee, if any, for the restructuring. Consequently, it is important and recommended to document the parties’ expectations from the restructuring in writing (especially if the restructuring is carried out to achieve the synergy effect in the group). As regards the examination of the realistically available options, the TPF’s recommendations indicate that it is necessary to identify the theoretical options available to the taxpayer and assess how realistic they are, their financial consequences and impact on financial and commercial terms offered to the enterprise as part of the restructuring.

  • identification of tax consequences of the actual transactions that make up the restructuring process


The TPF’s recommendations stipulate that tax consequences mean the effects of the restructuring in terms of the Corporate Income Tax Act, i.e. the tax treatment of the restructuring fee.

  • identification of the transfer of profit earning potential as a result of the restructuring


The EBIT ratio, calculated for the fulfilment of the criteria of restructuring definition, may serve as a starting point for the assessment of the extent of the transfer of the profit earning potential. And so may the correct identification of the actual transactions, which consists of allocation of the correct functions, assets and risks to the enterprises involved. According to the TPF’s recommendations, the profit earning potential is determined by the transferred functions’ or assets’ ability to generate profit in the entity which takes over those functions and assets. Such assets may include e.g. intangible assets, business contacts, knowledge and experience of staff. Financial forecasts may also be used for the assessment. However, remember to analyse if the historical data are a good indicator for the forecast and to account for changes in the environment and business in the future.

  • identification if a restructuring fee is reasonable, taking into account the value of the profit earning potential and – if the fee is reasonable – examination if the fee is adequate


According to the Transfer Pricing Forum’s explanations and recommendations, if certain restructuring measures fit the definition of restructuring, this does not automatically mean that a separate restructuring fee is due. Enterprises which are not associated do not always get compensation if business arrangements change and their profit earning potential (and expected profits) drops. 
Consequently, no compensation is required for the mere reduction in profit potential if associated enterprises restructure their business. The authors of the TPF’s recommendations emphasise that there may be situations in which fees are not due at all or in which fees are included in the restructuring transaction price, e.g. in the valuation of intangible assets. Moreover, it happens that both restructuring parties gain benefits from the process and this may justify the waiver of a one-off fee.

Importantly, the reasonableness of a separate restructuring fee must be every time checked on a case-by-case basis according to the rules set out in the TP regulation. The restructuring fee, if any, may be set using one of the methods laid down in Article 11d of the Corporate Income Tax Act, i.e. comparable uncontrolled price, cost plus, net transaction margin, profit split (basis transfer pricing methods), independently or in combination with valuation techniques.


Documentation of restructuring


Summing up the above deliberations, we would like to emphasise that the assessment if the terms of the restructuring comply with the arm’s length terms should follow the above guidelines stipulated in chapter 4 of the TP regulation. Such an assessment limits the risk of having the transaction terms challenged by tax authorities.


The TPF’s recommendation also emphasise the need to document the restructuring process. This should start as soon as the decision on restructuring is taken and continue throughout the process. The documentation of restructuring should include all points (elements) listed in chapter 4 of the TP regulation.


By following the TPF’s recommendations you limit the risk of tax authorities challenging the arm’s length nature of the restructuring. Therefore, we recommend reviewing them carefully as this will enable you to identify inconsistencies between the recommendations and the terms of the already completed restructuring projects and to choose the proper restructuring method and procedure before the start of restructuring. 


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Joanna Tomczak

Tax adviser (Poland)

Senior Associate

+48 532 540 761

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