What is an APA?
An Advance Pricing Agreement (APA) is a formal agreement on transfer pricing methodologies between a taxpayer and a tax authority. Under an APA, the tax authority accepts the method used by the taxpayer to verify transfer prices in transactions with related parties. This agreement takes the form of an administrative decision, overseen by the Head of the National Revenue Administration (KAS).
For businesses, APAs serve as an effective tool to mitigate the risk of errors in transfer pricing and potential disputes with tax authorities. In essence, an APA acts as an assurance from the Head of KAS that the taxpayer’s arrangements with related entities are compliant and that the declared tax-deductible costs will not be challenged during audits.
An APA can apply retroactively from the beginning of the taxpayer’s fiscal year in which the application was submitted and is valid for up to five years. It can be renewed through a simplified procedure if critical agreement parameters remain unchanged.
Important!
According to Article 83(2) of the Corporate Income Tax (CIT) Act, an APA specifies:
- The controlled transaction and the related entities involved.
- The functional profile of the entities, covering functions performed, risks borne, and assets employed.
- The transfer pricing verification method.
- The calculation method for transfer pricing.
- Critical assumptions ensuring that the chosen method accurately reflects the transfer price.
- Required information for inclusion in the compliance report on the APA.
Statistics
As of June 30, 2024, the Ministry of Finance reported:
- 57 unilateral agreements
- 1 bilateral agreement
- 1 multilateral agreement
59 APAs concluded in the first half of 2024.
Important!
In 2023, a total of 110 APAs were concluded, including 14 bilateral ones, up from 99 agreements in 2022 (including 2 bilateral). The increase reflects growing business interest in APAs as a way to minimize tax risk and avoid disputes with tax authorities. Unilateral APAs dominated, constituting approximately 85% of agreements in 2023, compared to 96% in 2022. Unilateral APAs are often preferred due to simpler procedures and shorter processing times compared to bilateral or multilateral agreements.
The Ministry of Finance is currently processing 217 APA applications, including 156 unilateral and 61 bilateral ones.
Processing deadlines
The timeline for issuing an APA depends on its type:
- Unilateral APA: No later than six months from the initiation of proceedings.
- Bilateral APA: No later than 12 months from initiation.
- Multilateral APA: No later than 18 months from initiation.
The Ministry does not publish average processing times, which can influence taxpayers’ decisions to apply.
Our opinion
The internationalization of the Polish economy has led to a growing number of bilateral and multilateral APAs, following a long-standing trend. According to the National Revenue Administration, this increase is partly due to the exemption of transactions covered by an APA from limits on tax-deductible expenses under Article 15e of the CIT Act (effective from 2018–2021).
The growing popularity of APAs is also attributable to their ability to:
- Provide tax valuation certainty.
- Eliminate double taxation risks.
- Offer preferential conditions for transfer pricing compliance.
Although most APAs in 2022 and 2023 addressed the now-repealed Article 15e of the CIT Act, they also covered various types of transactions, such as:
- Sale of tangible goods domestically and internationally.
- Provision of services by domestic entities.
- Allocations involving permanent establishments.
- Business restructurings.
Given that an APA protects taxpayers from income adjustments, businesses should consider utilizing this tool to regulate prices for significant transactions, such as those involving goods or managerial services.
