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Michał Gosek

Tax adviser (Poland)
Associate Partner
Phone: +48 61 624 49 39
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The recent amendments to the transfer pricing laws have prompted numerous interpretation doubts and difficulties in fulfilling documentation obligations which have become overly bureaucratic and added a major administrative and financial burden to taxpayers. As a consequence, the Ministry of Finance has noticed a need to overhaul the Corporate and Personal Income Tax Acts in the transfer pricing department. A draft amendment with a number of changes which we are describing below was published on the Government Legislation Centre's website in July 2018.  The new provisions come into force starting with January 1, 2019.

Higher documentation thresholds

The current regulations oblige taxpayers to prepare a local file if their revenues or expenses in the previous tax year equalled at least the equivalent of EUR 2,000,000 while the basic transaction threshold is EUR 50,000 and goes up depending on revenues. 

The amended regulations impose a documentation obligation based exclusively on the value of a controlled transaction, and introduce two documentation thresholds of:

  • PLN 2,000,000 (less VAT) in respect of intangible assets (purchase and sale), services (purchase and sale), use/provision of tangible assets (including under rental, lease etc.), use/provision of intangible assets (including licences), attribution of income to a foreign permanent establishment and other transactions;
  • PLN 10,000,000 (less VAT) in respect of tangible current assets (purchase and sale), tangible assets (purchase and sale), debt financing (value of financing obtained/granted), surety and guarantee (guaranteed sum when granted/obtained).

The above change is meant to reduce documentation obligations but it may impose documentation obligations on taxpayers who currently have no such obligation as they earn revenues or incur costs of less than EUR 2,000,000. According to the amended regulations, taxpayers who make transactions of the types and values specified above will be obliged to develop a local file even if the sum of their revenues or expenses does not exceed EUR 2,000,000. 

Thresholds for transactions with tax havens will also go up – to PLN 100,000.

Documentation exemptions

The new regulations provide for exemptions from the documentation obligation for, among others, controlled transactions whose value is not a permanent revenue or tax-deductible cost and the price of which is set in an open tender procedure pursuant to the Public Procurement Act. Exemptions are available also for transactions covered by advance pricing arrangements, and controlled transactions related with the State Treasury, local government units or their associations.

Extended deadlines for local files and master files and submission of TP-R information returns

The new law permanently extend the deadline (to 9 months) for developing a complete local file and submitting information about transfer prices including, without limitation, details of the associated enterprises and controlled transactions, methods and transfer prices and general financial information. The authorities may use that information to assess the risk of understating the taxable income and to carry out statistical or economic analyses. The new transfer pricing information return (TP-R form) will replace the existing CIT-TP and PIT-TP forms. The new form is supposed to help select entities to be investigated.

Additionally, the deadline for preparing a master file will be extended to 12 months after the end of a tax year. 

Documentation adjusted to OECD standards

The mandatory components of the master file and local file will also change to ensure they match the OECD standards. At the same time, a master file will have to be developed by taxpayers who belong to a group of companies which prepares consolidated financial statements and earns consolidated revenues of more than PLN 200,000,000 or the equivalent in a foreign currency. 

The new regulations let taxpayers use a master file prepared by another member of a group of associated enterprises also in English. The tax authorities will have the right to request translation of the file within 30 days after the request is served.

Low value-added services and loans

The new regulations will introduce safe harbour regimes which stipulate whether a transfer price is arm's length or not. The regime is meant to assure the taxpayers about the arm's length nature of their transfer prices and reduce their documentation burden. It will be available to two types of transactions, namely loans and low value-added services. 

The authorities will not assess the mark-up in respect of low value-added services if statutory conditions such as the following are met:

  • the fee for the purchased services is not higher than 5% of expenses;
  • the fee for the sold services is not lower than 5% of expenses;
  • the service recipient has information about the type and amount of costs included in the calculation;
  • the service recipient knows the method of application and justification of the choice of allocation keys for all associated enterprises which receive the services. 

Furthermore, the new regulations change the list of low value-added services.

As regards loans among associated enterprises the authorities will generally not assess the interest rate if:

  • it is based on the basic interest rate announced by the Minister of Finance;
  • there are no additional fees related to the loan handling;
  • the loans are granted for no more than 5 years;
  • the sum of granted/obtained loans does not exceed PLN 20,000,000;
  • the lender has no registered office, place of residence or management board in a tax haven.

New limits on tax-deductibility of expenses

The draft amendment changes the limits on deductibility of costs of financing and intra-group services as regards:

  • the limit on tax-deductibility of costs of intra-group services and licences which will go up from the current 5% to 10% of tax EBITDA above the safe harbour of PLN 3,000,000;
  • the limit of 30% on costs of debt financing, which will be reduced to 20%;
  • the abolishment of the authorities' right to check the market creditability on the basis of Article 15ca of the VAT Act.

Regulation of the arm's length principle

The draft says that in justified circumstances it will be possible to use methods, including valuation technics, other than listed in the statute, to determine the taxpayer's revenues or tax-deductible costs in controlled transactions. 

Transfer pricing adjustments

The draft amendment changes the rules for TP adjustments and allows changing the amount of revenues or tax-deductible costs if:

  • the terms of the controlled transaction match the terms that independent enterprises would set;
  • there are significant circumstances that justify the adjustment;
  • the adjustment is made before the deadline for filing the annual tax return for the tax year in which the transactions are made;
  • the taxpayer receives, before the deadline for filing the annual tax return for the adjusted tax year, a statement from the associated enterprise that the latter has made the adjustment by the same amount;
  • the associated enterprise is established in a country with which Poland has signed a double taxation agreement and there are grounds for exchange of tax information with that country;
  • the taxpayer confirms the adjustment in the annual tax return for the adjusted year.

Entry into force and new regulations

The new rules come into force on 1 January 2019 and the changes will generally apply to transactions made after 31 December 2018. However, taxpayers will be allowed to follow the new rules in respect of income earned in the tax year beginning after 31 December 2017.

Furthermore, the Minister of Finance will determine by way of a new regulation:

  • the way and the method of determining compliance with the terms and conditions which independent enterprises would agree;
  • the way and the method of determining the taxpayer's income or loss by way of assessment, including the fee for transfer of economically significant functions, assets or risks among associated enterprises;
  • the way and method of eliminating double taxation in the case of profit adjustment of associated enterprises.

If you are interested in details of the changes described above, the Rödl & Partner's TP Team is at your service in our offices in CracowGdansk, Gliwice, Poznan, Warsaw and Wroclaw.

21.11.2018