Non-recognition and re-characterization
The new law, grants the tax authorities additional tools. They are now able to re-characterize or even disregard related party transactions if they conclude that unrelated entities would not enter into transaction declared by the taxpayer or would conclude different transaction. Consequently, when assessing the arm’s length level of remuneration in a given transaction, they could refer to other transactions or terms that in their opinion could have been applied by unrelated parties.
Introduction of safe harbours
Safe harbours have been introduced for two transaction types, i.e. loans meeting specific requirements and low-value-adding services. In the case of the former, an official announcement on the arm’s length level interest rates has been published. For the latter, a mark-up of 5% is recommended.
Transfer pricing adjustments
The new regulations modify significantly rules on conducting transfer pricing adjustments.
Adjusting the results (and not only revenue or costs) of related party transactions is now allowed. Such adjustment could be recorded for tax purposes in the adjusted period, contrary to previous financial years. However, the taxpayers will be obliged to meet a number of requirements before conducting the adjustment, which may make them difficult to apply in practice.
New TP documentation materiality thresholds
Based on experience with how the voluntary split payment works, it should be assumed that some functional limitations of this mechanism will also appear in its mandatory variant. As an example, currently split payment method can be used only for single invoice payments (it is not possible to pay via split payment with a single payment for multiple invoices).
Once this method becomes mandatory, such limitations may cause serious problems if they will appear on a vide scale basis. It would be advisable to be prepared to face such difficulties.
Mandatory nature of split payment
New transactional materiality thresholds applicable for TP documentation (local file) have been introduced, i.e.
- PLN 10 million (approx. EUR 2,5 million for transactions concerning tangible assets and financing); and
- PLN 2 million (approx. EUR 0,5 million for other transactions).
Materiality threshold for master file has been set at PLN 200 million of consolidated revenue. According to the new regulations, the master file may be prepared in English.
Contents of transfer pricing documentation and benchmarking studies
The scope of mandatory elements of transfer pricing documentation has also changed. In particular, taxpayers must present actual result achieved on a specific related party transaction (which will in most cases require segmentation of profit and loss account).
Benchmarking studies has now become a compulsory element of the documentation for each transaction described in a local file, except for those to which safe harbours apply. Until the end of 2018, benchmarking studies were obligatory for taxpayers exceeding the materiality threshold of EUR 10 million revenue or costs. If conducting such analysis is impossible, a taxpayer is obliged to prepare an analysis justifying compliance of the related party transaction with the conditions that would have been set by unrelated entities.
Finally, taxpayers are now obliged to explain any discrepancy between the actual results achieved on related party transactions and results of relevant benchmarking studies. This will in most cases require segmentation of the profit and loss account.
The local transfer pricing documentation does not have to include description of domestic transactions conducted between Polish taxpayers, who are not exempt from income tax, are not located in the special economic zone and do not incur losses. Certain other limitations from the transfer pricing documentation requirements are also provided.
New reporting responsibilities
Taxpayers are also required to submit a new electronic form (TP-R form), which replaces the previous CIT-TP / PIT-TP reporting forms. The new form must be submitted within 9 months after the end of the financial year and should contain information on the transactions carried out with related entities.
The new requirements oblige taxpayers to submit within 9 months after the end of the tax year a statement to the tax authorities confirming that (1) the transfer pricing documentation had been prepared and (2) related party transactions described therein had been conducted according to the arm’s length principle. The statement must be signed by a management board member. Submission of a false statement may lead to personal fines.