Previously, the tax regulations imposed an obligation on taxpayers to document a transaction with an entity based in a tax haven, when the value exceeded PLN 100,000 in the tax year. For 2021, taxpayers will also be obliged to prepare transfer pricing documentation in a case where:
- The beneficial owner has its place of residence, registered office or management in a territory or country applying harmful tax competition, and
- The value of this transaction for the tax year, or in the case of partnerships (not legal persons) for the financial year, exceeds PLN 500,000.
Under the amended regulations, it is presumed that the beneficial owner has a place of residence, registered office or management in a territory or country applying harmful tax competition if, in the tax year or financial year, the other party to the transaction makes settlements with an entity with its registered office or management in a territory or country applying harmful tax competition.
The jurisdictions classified as tax havens are indicated in the Regulation of the Minister of Finance of 28 March 2019 on Countries and Territories Applying Harmful Tax Competition with Respect to Corporate Income Tax.
If the presumption is not rebutted, taxpayers will be obliged to prepare local transfer pricing documentation also when entering into transactions with unrelated parties. Thus, due diligence is important when reviewing transfer pricing obligations in this regard.
Pursuant to the tax explanatory notes (Transfer pricing tax explanations No. 4—Presumption and due diligence referred to in CIT Act Art. 11o(1b) and PIT Act Art. 23za(1b)), to exercise due diligence in verifying transactions with unrelated parties it will be necessary to obtain a statement from the counterparty indicating that it does not make any settlements in the tax year with an entity located in a tax haven.
To exercise due diligence with respect to related parties, it will be necessary both to obtain an appropriate declaration and to verify the information received from the related party. Sources of knowledge about a related entity may include for example:
- Transfer pricing documentation
- Country-by-country (CbC) information on corporate groups
- Financial statements and auditor’s opinion
- Ownership structure
- Opinion of a member of a profession of public trust.
We recommend reading more about the tax explanations of the Ministry of Finance at the following link.
Risk minimization measures
First and foremost, the new obligations coming into force will require taxpayers to exercise due diligence. Measures that will reduce the risk of having to prepare transfer-pricing documentation include:
- Collecting statements from counterparties
- Developing a procedure for verification of counterparties in terms of settlements with entities from tax havens
- Including clauses in contracts enabling the taxpayer to obtain information necessary for verification of the counterparty
- Adding relevant provisions to the transfer pricing policy or other internal documents relating to the verification procedure, and further proceedings in a situation where a counterparty carries out transactions with an entity from a tax haven.