The first transfer pricing regulations in Poland were introduced into the Polish Corporate Income Tax Act (hereinafter, the CIT Act) in 1992. Nowadays, Polish transfer pricing regulations concern on the one hand
the obligation to prepare transfer pricing documentation and on the other hand the conditions and methods of estimation by the tax authorities of the market value of a transaction.
Under the CIT Act, taxpayers performing (a) transactions with related parties or (b) transactions in relation to which the payment of sums due as a result of such transactions is made directly or indirectly for the benefit of a person resident in, or having its seat or management located in, a jurisdiction deemed to be engaged in detrimental tax competition (a ‘tax haven’) must prepare transfer pricing documentation relating to those transactions.
De minimis exceptions apply in both cases. For related-party transactions, documentation need be prepared only where the total amount (or its equivalent) resulting from the contract or the total amount, actually paid in the tax year, in respect of performance enforceable in the tax year is greater than:
- EUR 100 000 if the value of the transaction does not exceed 20% of the initial capital
- EUR 30 000 where the transaction involves the provision of services, the sale of intangible fixed assets or making such assets available or
- EUR 50 000 otherwise
Where transactions with tax havens are concerned, the de minimis limit is EUR 20 000.
Generally, in the Polish transfer pricing regulations, the tax authorities are entitled to determine the taxpayer’s income where, as between associated parties, there are agreed or imposed conditions substantially different from those that would be agreed between independent parties and, as a result thereof, the taxpayer either discloses no income or discloses an amount of income smaller than might be
expected in the absence of the association.
The associations that bring the transfer pricing rules into play are as follows:
- where a taxpayer having its seat (or place of management) or residence in Poland, hereinafter referred to as a ‘domestic party’, participates directly or indirectly in managing or controlling an enterprise located abroad or has a share in its capital or
- where a natural or legal person resident or having its seat (or place of management) abroad, hereinafter referred to as a ‘foreign party’, participates directly or indirectly in managing or controlling a domestic party or has a share in its capital or
- the same legal persons or natural persons at the same time participate directly or indirectly in managing or controlling a domestic party and a foreign party or have shares in both parties’ capital or
- a domestic party participates, whether directly or indirectly, in the management or control of another domestic party or holds a share in the capital of another domestic party or
- the same legal or natural persons participate at the same time, whether directly or indirectly, in the management or control of domestic parties or hold a share in their capital
Holding a share in the capital of another party means for these purposes a situation where one party, whether directly or indirectly, holds a share of at least 5% in another party’s capital.
While determining the size of an indirect share held by a party in another party’s capital, the principle applies whereby if one party (A) holds a certain share in the capital of another party (B), and B holds the same share in the capital of a third party (C), then A holds an indirect share of the same size in the capital of C; if the sizes of these shareholdings (A’s in B and B’s in C) differ, A’s indirect share in C is deemed to be of the smaller size.
In the case of domestic parties, the transfer pricing regulations also apply to links of a family nature or those resulting from employment relationships or property relations between domestic parties or persons
performing managerial, inspectorial or supervisory duties with these parties or where any person combines managerial, supervisory or inspectorial duties performed with such parties. The family link means marriage and consanguinity or affinity (relationship by marriage) up to the second degree.
Incomes can be assessed by the tax authorities on the basis of estimation, applying the following methods:
- Comparable Uncontrolled Price
- Resale Price
- Reasonable Margin (‘cost plus’)
Only if application of the above methods is impossible, can the transactional-profit method be used.
If the tax authorities determine a taxpayer’s income in an amount higher (or loss in an amount lower) than the amount declared by the taxpayer in relation to the transactions and the taxpayer does not produce to such authorities the tax documentation required by these provisions – the difference between the income declared by the taxpayer and that determined by the authorities can be subject to taxation at a rate of 50%.
The general rule in Poland is that when the taxpayer submits transfer pricing documentation at the request of the tax authorities, then even if the transaction price is adjudged to be not the arm’s length price, the additional income is taxed at the general corporate tax rate of 19% and not at 50%.
It should be noted that, despite the existence of the TP regulations, the CIT Act nowhere contains a definition of ‘transfer price’. The Act defines only the ‘transaction price’, as the price charged between the associated parties (whether or not it is the market price).
That being so, the taxpayer is obliged to prove in the transfer pricing documentation that the calculated price in the controlled transaction is such a transaction price. With reference to transfer pricing issues, the main problem for Polish taxpayers is the methodology of grouping transactions and valuing them to test
against the de minimis limits described above, to see whether transfer pricing documentation is necessary.
**The information contained on this website and from any communication related to this website is for informational purposes only and does not constitute any legal, financial or other advice. For specific tax advice you should contact a qualified professional.