Transfer pricing - Poland

• he main Polish tax regulations in the area of transfer pricing can be found in the Personal Income Tax Act (PIT Act) and on Corporate Income Tax Act (CIT Act). They are specified in chapter 4b of the PIT Act and chapter 1a of the CIT Act. The tax regulations in the area of transfer pricing also include a number of executive acts (decrees and announcements). Regulations connected to this area are also included, among others, in the Tax Ordinance and the Act on the exchange of tax information with other countries. Generally, Polish tax regulations in the area of transfer pricing are consistent with the OECD Guidelines.
• The TP rules apply to PL taxpayers, including PL branches of overseas companies
• The statutory deadline for preparing the transfer pricing documentation obligations is:
  
  • 10 months after the end of a fiscal year – in case of the Local file;
  • 12 months after the end of a fiscal year – in case of the Master file.
• The Local file does not have to be filed to the tax authorities on the deadline but representatives of the company need to formally declare its existence and confirm whether intragroup transactions are within arms-length principle. Also with Master file, taxpayers do not have to submit prepared documentation to the tax authorities.
• Yearly TP-R reports need to be filed to the tax authorities by the 11th month after the end of the fiscal year.
• The deadline for filing:
  • CbCR - is 12 months following the end of the reporting financial year of the group;
  • CbCR notification - is 3 months following the end of the reporting financial year of the group.
• The taxpayer has 14 days from receipt of a formal request to submit the transfer pricing documentation to the Polish tax authorities. In addition, the taxpayer has 30 days from receipt of a formal request to submit transfer pricing documentation (without transfer pricing analysis) to the Polish tax authorities for transactions not subject to the transfer pricing documentation.

• Poland is the OECD member country
• The OECD Transfer Pricing Guidelines are no part of the Polish law, however, they are used as an explanatory instrument.
• Polish regulations are in line with the OECD Guidelines.
• The tax authorities refer to the OECD Guidelines when applying transfer pricing principles

• Generally, the transfer pricing methods accepted by the tax authorities are based on the OECD Guidelines. These methods are:
  • CUP (Comparable Uncontrolled Price Method)
  • Resale Price Method
  • Cost Plus
  • TNMM (Transactional Net Margin Method)
  • Profit Split Method.
• When selecting a price calculation method, taxpayer should make sure it is appropriate for the transaction. There is no obligation to use traditional methods before profit-sharing methods.
• The regulations also allow for the use of another method, including a valuation technique, if none of the five above methods can be used.

• Poland adopted the OECD three-tiered approach to transfer pricing documentation (with some local specifics), i.e.:
  
  Local File
  
• The obligation to prepare a Local file is imposed on taxpayers (natural persons, legal persons, organisational units without legal personality and permanent establishments) engaged in controlled transactions:
  
  • with its associated enterprises (according to the definition provided in the Polish tax law) or
  • with entities based in a country applying harmful tax competition, i.e. “tax haven” (the list of such countries is included in the Decree issued by the Polish Finance Minister), and

which exceed the thresholds specified below.
The local file, together with a transfer pricing analysis, should be prepared for each controlled transaction exceeding:

• • PLN 10 million (approx. EUR 2.5 million) for commodity or financial transactions;
  • PLN 2 million (approx. EUR 500 k) for service transactions and transactions other than those mentioned above.
• In the case of controlled transactions conducted with entities based in a 'tax haven', the threshold for preparation of the Local file is:
  
  • PLN 2,5 million (approx. EUR 625 k) for financial transactions;
  • PLN 500k (approx. EUR 125 k,) for transactions other than those mentioned above. 
• Taxpayers required to prepare Local Files are also required to conduct benchmarking studies for each transaction. The purpose of the Local File is to provide evidence of the arm’s length character of transactions made with related parties.
• Local file should be prepared in Polish.

Master File

• Taxpayers are required to possess the Master file if both of the following criteria are met:
  
  • the taxpayer is obliged to prepare the local file; 
  • the group prepares consolidated financial statement; and
  • the consolidated revenues of the taxpayer’s capital group exceeded PLN 200 million (approx. EUR 50 million) in the previous fiscal year.
• Master file may be prepared in English. However, in the case of a request from the tax authorities, the taxpayer is obliged to provide them with a Polish version within 30 days.

Country-by-Country Reporting (CbCR)

• Members of the capital groups with consolidated revenues exceeding EUR 750 million or PLN 3 250 million (in the case that the consolidated revenues are presented in PLN) are, under certain circumstances, obliged to submit CbCR to the Polish tax authorities or notify them about the country where it is filed.

Additional reporting obligations:

• Taxpayers obliged to prepare the Local file are also required to provide the Polish tax authorities with information on transfer pricing (TP-R). TP-R must be signed by the Management Board or a designated person within the Management Board. It is not permissible signature of the TP-R by proxy, except by an proxy who is an attorney, legal adviser, tax adviser or certified auditor. Failure to submit or improperly complete a TP-R shall be the personal responsibility of the Members of the Management. A proxy (who is an attorney, legal counsel, tax advisor or auditor) may also be held criminally liable for breaching his or her obligations to file a TP-R form.
• The transfer pricing information (TP-R) requires providing the tax authorities with a wider range of data (e.g. taxpayer’s financial ratios, benchmarking study results) that allows the authorities to select enterprises for transfer pricing control in a more effective and efficient manner.
• TP-R also includes a statement on preparing the Local file (Transfer pricing statement), which was previously submitted separately. The Transfer pricing statement should confirm: (i) the fact that the transfer pricing local file is in place, and (ii) that documented transactions are at arm’s length.

• In general, the Polish transfer pricing documentation is in line with Chapter V of the OECD Guidelines (2017). However, some local specifics need to be included for the master file and local file.
• Local file should include (presented separately for each transaction):
  • a description of the related parties engaged in the controlled transactions;
  • a description of the controlled transactions, including the functional analysis;
  • a transfer pricing analysis under which the taxpayer (depending on the circumstances) is obliged to prepare a benchmarking study or otherwise justify the arm’s-length nature of the transaction;
  • financial data.
• Master file, it should include following information:
  • description of the group;
  • description of the material intangible assets owned by the group;
  • description of the material financial transactions carried out by the group;
  • financial and tax information concerning the group.
• The specific scope of the local and master file is presented in the ordinance issued by the Polish Ministry of Finance.

• Companies making losses over a number of years, in particular “low risk” entities.
• Sustained losses by local entities, but (overall) profits in the group.
• Companies paying large management fees or paying royalties or other charges for the use of intellectual property.
• Significant group reorganizations involving business or IP transfers overseas.
• Transactions with tax havens or shelters.

• In accordance with the provisions of the Tax Ordinance, the sanction for using non-arm’s length pricing in transactions with associated enterprises may vary from 10% to 30% of the amount of overstated loss or understated income, depending on the circumstances.
• Note that regardless of the above, in the case that the transfer pricing documentation (both Local and Master File) is: (i) not submitted within the statutory deadline, (ii) incomplete, or (iii) contains false information, individual sanctions might be imposed on individuals based on the Fiscal Penal Code ('FPC').
• The FPC do not include specific provisions on penalties for failing to meet the transfer pricing documentation obligations in Poland. Therefore, any potential penalties/sanctions would be imposed based on the general regulations.

• The Polish tax authorities will expect to see that a search for potential internal comparables has taken place before defaulting to an external database search for comparables
• The Polish tax authorities generally accept the regional benchmarking studies, in particular pan-European ones (assuming that the comparability criteria are met). The Polish tax authorities prefer local comparables (if available), in particular in the case that the benchmarking study is for a Polish entity only.
• The local documentation (Local File) may not contain the transfer pricing analysis in the case of controlled transactions concluded by related parties that are micro or small businesses according to Act of 6 March 2018 - Entrepreneurs' Law (Journal of Laws of 2018, item 646) and for non-controlled transactions with entities from so called "tax havens".

• The applicable provisions of the CIT Act and the PIT Act define the possibility to make transfer pricing adjustments. These provisions allow such adjustments to be recognised in the year to which they relate, even if they are ‘minus’ adjustments, but only if all the requirements set out in the Corporate Income Tax Act are met.
• According to Article 11e of the CIT Act, a taxpayer may adjust a transfer price by amending the amount of its revenues or tax-deductible costs if the following conditions are met jointly:
  • the controlled transactions concluded by the taxable person in a fiscal year were on the terms that would have been agreed between independent entities;
  • significant circumstances influencing the terms agreed upon during the fiscal year changed or the actual costs incurred or revenues earned being the basis for calculating the transfer price become known and the transfer prices must be adjusted to ensure their compliance with market terms;
  • upon adjusting the transfer prices, the taxable person holds a statement or accounting evidence from the associated enterprise confirming that the associated enterprise adjusted the transfer prices for the same amount as the taxable person;
  • the associated enterprise referred to in the point above has its place of residence, registered office or management board in Poland or in a country or a territory with which Poland has concluded a tax treaty and there is a legal basis for the exchange of tax information with that country.

• The rules in force include mechanisms available to tax authorities when estimating revenue. Possibilities are:
  
  • Recharacterization of a transaction;
  • Disregarding of a transaction; 
• Recharacterization and disregarding of the transaction may be applied under the opinion of the tax authorities, if in comparable circumstances, unrelated parties guided by economic rationality would not have entered into the controlled transaction concerned. 
• In assessing these facts, the tax authorities shall take into consideration the conditions that have been agreed between related parties and the fact that the conditions agreed between them do not allow the transfer price to be set at a level that would have been agreed by economically unrelated parties based on considerations of realistically available options.
• The effect of disregarding of a transaction by the tax authorities could lead to assessing the income or loss of the taxpayer without taking into account the controlled transaction, while the effect of recharacterization could lead to assessing the income or loss of the taxpayer with respect to the relevant transaction (i.e. the one that would be made by unrelated entities). 
• Tax authorities cannot use the above tools just because of:
  • Difficulty in verifying the transfer price;
  • Lack of comparable transactions between unrelated parties in comparable circumstances.

• The Polish regulations indicate several cases where the taxpayer is exempted from the obligation to prepare the local file. Those are the following:
  • conclusion of a transaction between Polish enterprises (only) that did not demonstrate a tax loss for the documented period and did not take advantage of selected tax exemptions (e.g. in connection with carrying out their operations within an Special Economic Zones);
  • conclusion of a transaction subject to an advance pricing agreement (APA);
  • conclusion of a transaction between companies from a tax capital group;
  • determination of the transaction price in an unlimited tender procedure based on the public procurement law;
  • transactions subject to safe harbours (once statutory conditions have been fulfilled)
  • re-invoicing transactions (once statutory conditions have been fulfilled).
• As there is no obligation to prepare Local file for the above transactions, taxpayers also do not need to prepare a benchmarking analysis, a TP-R form (with the exception of transactions exempt under Article 11n(1) of the CIT Act, i.e. domestic transactions) and Transfer pricing statement, as well as Master file. However, this does not exempt taxpayers from using arm's length prices in intra-group transactions.

• The Polish transfer pricing legislation provides for safe harbor regulations. . Safe harbour means that some of the transactions executed by the taxpayer will not be subject to estimation, as long as they are executed under the conditions indicated by the legislator. 
• These transactions are: 
  
  • Low added-value services (there is precise catalog of services that falls into this category);
  • Loan (credit and bond) agreements.
• In both cases, if certain conditions are met, the Polish tax authorities do not verify the arm’s-length nature of the remuneration agreed in transactions between associated enterprises, and recognize the methodology adopted by the taxpayer as correct. For safe harbor transactions, the taxpayer does not need to prepare either a benchmarking analysis or local file.
• Safe harbour for low value-added services could be applied where the cost mark-up for these services has been determined on the basis of the cost plus or TNMM method and is equal to: 
  
  • no more than 5% of the costs - in case of purchase of services; 
  • not less than 5% of the costs - for the provision of services. 
• Moreover, the service provider does not have its place of residence, registered office or management in a tax haven and the recipient of the service should has a service price calculation including the type and amount of costs included in the, the manner of application and justification for the selection of allocation keys for all related parties who use the services and a description of the transaction, including a functional analysis. 
• The condition for the application of the safe harbour for loans, on the other hand, is that the interest rate of the loan is determined on the basis of the type of base interest rate and margin set out in the Minister of Finance notice. In addition, the loan agreement must not contain any provision for remuneration other than interest to be paid to the lender and the loan must not be concluded for a period exceeding 5 years.
• It should be remembered that in order to benefit from the protection offered by the safe harbour for loan transactions, the total level of liabilities or receivables of the company with related parties cannot exceed PLN 20,000,000 or the equivalent of that amount, and the lender may not have a residence, registered office or management in a tax haven.

In the following summary we would like to provide you with a comparison of the most important transfer pricing regulations applicable to transfer pricing documentation prepared for 2021 and 2022.