Changes in transfer pricing from 1 January 2022

As of January 1, 2022, "The Polish Deal" introduced a number of new regulations that significantly affect taxpayers. The Act includes many key issues that directly affect affiliated entities. What changes affect the area of transfer pricing?
Author:
Olga Kucewicz
Junior TAX Manager

The following table presents issues, deadlines, as well as real consequences of the introduced changes. Important: the data applies to taxpayers whose tax year coincides with the calendar year. It cannot  be ruled out that new regulations will be introduced which would give taxpayers the option to choose a tax regime.

Issueconsequences Description of changes
Transfer pricing adjustments2022Article 11e (3-4) of the CIT Act

Simplifications have been introduced in the in minus adjustments and the recognition of information about the adjustments in the annual tax declaration. There is no obligation to confirm that the transfer pricing adjustment has been made in the tax return. It is possible to use an accounting document, and not only a statement confirming that the adjustment was made by another entity.  

In consequence, in order for a taxpayer to be able to apply transfer pricing adjustments, the following conditions must currently be met:
1. maintaining the terms of transactions corresponding to non-affiliated entities;changes have occurred in relevant circumstances affecting the terms agreed upon during a given fiscal year, or the actual costs borne or revenues earned, being the basis for calculating the transfer price, are known, and an adjustment to the transfer prices is required to ensure their conformity to the terms that would be agreed upon by non-affiliated entities;
2. at the time of the correction, the taxable person holds a statement of the affiliated entity or an accounting document confirming that the said entity adjusted transfer prices by the same amount as the taxable person;
3. there are legal grounds to exchange tax information with the country in which the affiliated entity has a registered office.

During the pandemic, taxpayers are exempt from obtaining statements from contractors. It can be assumed that the real consequences will be borne by taxpayers in 2022.
Added exemptions from the obligation to prepare transfer pricing documentation2023Article 11n of the CIT Act

A number of exemptions from the obligation to prepare transfer pricing documentation for 2022 have been introduced, i.e. in the case of transactions: covered by the safe harbor mechanism, with a foreign establishment, covered by a tax or investment agreement.  

The taxpayer may be exempt from the obligation to prepare local transfer pricing documentation, when the transaction:
1. is concluded by domestic entities, and the taxpayer has not suffered a tax loss and does not benefit from any exemptions;
2. is concluded between foreign establishments of related entities located on the territory of Poland, domiciled outside Poland, but in a Member State of the European Union or a country belonging to the European Economic Area;
3. is covered by an APA or an investment agreement;is concluded between companies forming a tax capital group;
4. is in connection with the State Treasury or local government units;in which the price was set under an open tender procedure;
5. is executed between a group of agricultural producers;
6. is executed between a group of fruit and vegetable producers;
7. is re-invoiced under certain conditions;
8. complies with safe harbor conditions for low value-added services;
9. complies with safe harbor conditions for financial transactions.  

Important: the period for which the safe harbor is examined is a given tax year. Currently, the examination  applies to the financial year. The moment when a financing agreement should comply with the conditions established by the Minister of Finance under the safe harbor mechanism in terms of interest rates, should be each moment of changing the loan agreement. Until now, the regulations required an analysis confirming the fulfillment of the safe harbor conditions at the time of concluding a financing agreement.  

It is recommend  to look for exemptions from the obligation to prepare additional analyses when concluding transactions with related entities during the fiscal year 2022. When concluding financial transactions with related entities during the fiscal year 2022, it is recommended to meet the financial safe harbor criteria, which will reduce the obligations and minimize the risk in the area of transfer pricing.
Re-invoicing transactions2022Article 11n (10) of the CIT Act

Re-invoicing transactions consisting solely ofthe settlement of expenses incurred for the benefit of an unrelated entity between related entities are exempt from the obligation to prepare transfer pricing documentation if the following conditions are jointly met:
1. lack of added value in the form of a margin;
2. re-invoicing is not related directly to another controlled transaction;
3. settlement was made immediately;
4. a related entity is not an entity established in a tax haven.  

It is  recommend to conduct due diligence during the tax year when making re-invoicing transactions with related entities, so as to meet all the conditions and be exempt from documenting this transaction.
ORD-U2022Article 82 § 1c. of the Tax Ordinance

Aolishing the obligation to submit the ORD-U form for entities submitting the TPR form while not simultaneously making direct or indirect transactions with contractors in tax havens.
Tax and Investment Agreement2022Article 11c (6) and 11n (2) of the CIT Act  

The definition of an investment agreement has been introduced alongside the already introduced definition of a tax agreement and will be included in the Tax Ordinance.

The agreements are to constitute a premise that does not allow the tax authority to determine the tax obligation in the case and scope of the relevant agreement, also including matters related to transfer pricing.

Important: Since 2022 it is possible to obtain a tax agreement and an investment agreement.
Sanctions in the Penal Fiscal Code for failure to prepare transfer pricing documentation or TPR form2022Article 56c § 1. § 2. of the Penal Fiscal Code

Up to 720 of daily rates.
Sanctions in the Penal Fiscal Code for failure to prepare transfer pricing documentation or TPR form on time2022Article 56c § 3. § 4. of the Penal Fiscal Code

Up to 240 of daily rates.
Entities obliged to prepare group transfer pricing documentation2023Article 11p of the CIT Act

The threshold for Master File obligations has been abolished. From the new tax year, related entities which are obliged to prepare local transfer pricing documentation, whose financial statements are consolidated using the full or proportional method, are obliged to prepare the group transfer pricing documentation (Master File), prepared for the financial year, by the end of the twelfth month after the end of the tax year.
Value of the transaction2023Article 11l (2a) of the CIT Act

If VAT is not neutral for the taxpayer, the amount of VAT resulting from the controlled transaction will be included in the value of the transaction related to the documentation threshold.
The thresholds:
1. PLN 10 000 000 - in the case of a commodity transaction;
2. PLN 10 000 000 - in the case of a financial transaction;
3. PLN 2 000 000 - in the case of a service transaction;
4. PLN 2 000 000 - in the case of a transaction other than those specified in subparagraphs (1) to (3).

It is recommend to conduct ongoing analyses of transactions with related entities during 2022.
Benchmarking / compatibility analysis2023Article 11q (3a) of the CIT Act

A number of exemptions from the obligation to prepare TP analyzes were introduced in the case of transactions:
1. covered by the safe harbor mechanism for low-value services;
2. concluded by affiliated entities that are micro or small entrepreneurs;
3. and some transactions with entities from tax havens.

In the case of a contract of a company that is not a legal person, joint venture or other such agreement, the TP analysis is to include mainly established rules regarding: the rights of partners, parties to the contract to participate in profit / loss. It is recommended to look for the possibility of an exemption from the obligation to prepare additional analyses.

It is advised to pay attention to the following mechanisms: safe harbor for low value-added services; and safe harbor for financial transactions.

Safe harbor for low value-added services

The following conditions must be met:
1. the markup on the costs of services is:
* not more than 5% of the costs - in the case of service acquisition;
* not less than 5% of the costs - in the case of service provision;
2. using the cost plus method or the transactional net margin method;
3. the service provider is not an entity residing in a tax haven;
4. the service recipient has a calculation including the following information:
* type and amount of costs included in the calculation;
* the method of application and the rationale for the selection of allocation keys for all related entities using the services;
* a description of the transaction, including analysis of functions, risks and assets.  

Safe harbor for low value added services applies to the services listed in Annex 6 to the CIT Act, which meet all of the following conditions:
1. they are services supporting the economic activity of the service recipient;
2. they do not constitute the main object of the activity of the group of affiliated entities;
3. the value of those services provided by the service provider to non-affiliated entities does not exceed 2% of the value of those services provided to affiliated and non-affiliated entities;
4. they are not the object of further resale by the service recipient, excluding re-invoicing.

Safe harbor for financial transactions

The following conditions must be met:
1. the annual interest rate on the loan at the date of the conclusion of the agreement is set based on the type of base interest rate and the margin specified in the announcement of the Minister of Finance from 21 December 2021 on the type of base interest rate and margin for transfer pricing purposes;
2. no commission or bonus under the loan;
3. the loan was granted for a period not longer than 5 years;
4. during the tax year, the total level of liabilities or receivables of the affiliated entity arising from the principal amount of loans with affiliated entities, calculated separately for granted and taken loans, does not exceed PLN 20 000 000 or the equivalent of this amount;
5. the lender is not an entity having the registered office in a territory or in a state applying harmful tax competition.  

It is  recommend to conduct an ongoing safe harbor analysis in 2022, also in terms of possible MDR reporting.
Deadline for preparing local transfer pricing documentation (Local File)2023Article 11k (1) of the CIT Act

Change from 9 to 10 months after the end of the tax year. The change will have real effects on taxpayers in 2023, when documentation for the tax year 2022 will be prepared. However, it is possible that the legislator will extend the deadline for preparing the documentation in 2022.
Deadline for submission of TPR form2023Article 11t (1) item 2 of the CIT Act

Change from the current 9 months to 10 months after the end of the tax year. The change will have real effects on taxpayers in 2023, when the TPR form for the tax year 2022 will be prepared.
Deadline for preparing group transfer pricing documentation (Master File)2023Article 11p (1) of the CIT Act

The deadline is 12 months after the end of the tax year (no change).
The deadline for submitting transfer pricing documentation to the tax authorities in the case of tax audit2023Article 11s (1) of the CIT Act

Change from the 7 days to 14 days.
TP statement2023Article 11t (2) item 7 of the CIT Act

There is no obligation to submit a separate statement on the preparation of transfer pricing documentation and certification of the arm's length nature of transactions with related entities. The content of the declaration will be included in the TPR form. The change will have real effects on taxpayers in 2023, when the TPR form for the tax year 2022 will be prepared.
Submitting the TPR form2023Article 11t (1) item 2 of the CIT Act

The “Polish Deal” introduces the obligation to submit the TPR form to the tax offices competent for submitting the annual income tax declaration. Currently, the form is submitted to the Head of KAS. The change will have real effects on taxpayers in 2023, when the TPR form for  tax year 2022 will be prepared.
TPR form for entities that are not a legal person2023Article 11t (1a) item (1-3) of the CIT Act

Non-legal entities are also obliged to submit the TPR form to the head of the tax office competent for the registered office or place of business of the entity. So far, the TPR form has been submitted by a designated partner to the Head of KAS. The change will have real effects on taxpayers in 2023, when the TPR form for the tax year 2022 will be prepared.
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