Joanna Jurasz

Attorney at law (Poland)
Associate Partner
Phone: +48 61 624 49 31

Michał Gosek

Tax adviser (Poland)
Associate Partner
Phone: +48 61 624 49 39

Definition of low-value added services was added in Poland to the transfer pricing provisions in 2013. This amendment concerned Polish taxpayers operating as part of corporate groups, and the new provisions became applicable from the date of their entry into force to all matters which are already under way. The low value-added services have been catalogued and the rules for calculating prices of transactions involving such services have been set out. The new provisions also govern the special procedure for investigating such transactions. 

The provisions are included in the Regulation of the Minister of Finance of 17 June 2013 amending the Regulation on the method and procedure of determining income of legal persons by way of assessment as well as on the method and procedure for elimination of double taxation of legal persons in the case of correction of gains earned by related parties (the "Regulation"). 

Minister’s Regulation in the context of OECD Guidelines

The changes were made to adjust the domestic regulations to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations and to implement the EU Joint Transfer Pricing Forum’s transfer pricing guidelines on low value-added services. At the same time, this is a foretoken of more comprehensive changes coming from the lawmakers.

One of the changes that applies to most Polish taxpayers operating as part of corporate groups is adding to the provisions a definition of low value-added services along with a comprehensive list of such services and a special procedure for the investigation of transactions. Polish tax regulations on transfer pricing used to be short of detailed rules on the calculation of prices of transactions involving low value-added services.

Types of low value-added services

The Regulation defines the low-value added services as "services which are routine, ancillary to the core business of the principal, generally or easily available and which do not create significant added value for the principal or the service provider". They include without limitation:

Along with those services, the Regulation introduced the concept of the shareholder's expenses, that is, expenses incurred by the owner, which should not be considered as related to provision of services because they bring benefits exclusively to the holder of shares. Appendix no. 2 to the Regulation includes the example list of the shareholder's expenses. 

The new transfer pricing provisions allow for simplified investigation procedures introduced from 18 July 2013. However, the precondition is that the taxpayer describes the low value-added services in transactions with a related party. To write such a description it is enough to refer to §22a(3) of the Regulation, which describes the elements that must be included. In the face of the previous, intricate transfer pricing provisions this will be a major facilitation for taxpayers.

Are the new provisions favourable to taxpayers in Poland?

The legislative changes in Poland to the transfer pricing may seem to impose new administrative obligations on taxpayers. But in fact, they may bring measurable benefits. If a taxpayer presents in the course of an investigation a description of low value-added services, the investigators will in the first place check the reasonableness of the transaction involving those services and will make their assessment on the basis of that description. Since the provisions are clear and accurate about which elements are going to be checked by the tax authorities, taxpayers can limit the risk of challenging the terms of transactions between related parties. At the same time, taxpayers may present their case for making the transactions on the terms they have agreed.

Taxpayers may be a bit in doubt about the fact that the new provisions do not include a separate list of methods for calculating transfer prices of low value-added services. §22a(6) of the Regulation says indirectly how such transactions should be priced. It stipulates that the allocation of costs incurred by related parties in connection with low value-added services should be examined in terms of the conditions that unrelated parties would agree. In this context, we may conclude that the transfer prices of low value-added services are to be calculated using the methods referred to in Article 11 of the Corporate Income Tax Act.

The separate treatment of low value-added services relaxes the documentation obligations and should be considered favourable and seen as a step towards adjusting the Polish provisions to European standards. Nevertheless, there will most probably be doubts and questions about the interpretation of the new provisions, which will have to find their answers in advance tax rulings and judgements of administrative courts.

Rödl & Partner would be glad to scrutinise your transfer pricing documentation to check if the transactions may be classified as purchase/provision of low value-added services. If they may, we would offer our tax advice in Poland on adjusting the documentation to the new law. 

At the same time, we would like you to note that having the description of low value-added services is a right, not an obligation, of taxpayers. In practical terms, however, it may simplify and shorten the tax inspection.

Updated: 12.03.2018