The full implementation of these obligations, i.e. potential preparation of transfer pricing documentation and verification of the prerequisites for the documentation obligation, will take place in the half of 2022. However, we recommend exercising due diligence and implementing appropriate contractor verification procedures.
Documentation of transactions with a tax haven entity for 2021
Previously, 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 case when the actual owner has a place of residence, registered office, or management board in the territory or country applying harmful tax competition and the value of this transaction for the tax year. In the case of companies that are not legal persons - for the tax year, it exceeds PLN 500,000.
Verification of a tax haven contractor
In accordance with the wording of the amended regulations, it is presumed that the actual owner has a place of residence, registered office or management in the territory or country applying harmful tax competition, if the other party of the transaction makes, in the tax year or financial year, settlements with an entity having its registered office or management in the territory or country applying harmful tax competition.
Which country is classified as a tax haven is indicated by the Regulation of the Minister of Finance of 28 March 2019 on the determination of countries and territories applying harmful tax competition with respect to corporate income tax.
The verification of the contractor is required in respect of purchase transactions, from the perspective of the taxpayer, in which the taxpayer purchases goods or services as involved with a transfer of the amount due to the other party to the transaction. The taxpayer should analyse his transactions particularly in terms of who receives the receivable for their own benefit and whether the contractor is not obliged to transfer it to another party.
This means that transactions, in which the taxpayer o sells goods or provides services to the other party of the transaction, are subject to verification. The verification may also cover situations in which the recipient of the receivable is a Polish resident, if the actual owner is a haven entity. In the case where the Polish resident is also the beneficial owner, the documentation obligation does not arise.
If the presumption is not rebutted, taxpayers will be obliged to prepare local transfer pricing documentation also when entering into transactions with unrelated parties.
In order 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 have any settlements in the tax year with an entity located in a tax haven.
In order to exercise due diligence on related parties it will be necessary both to obtain an appropriate declaration and to verify the information received from the related party.
The source of knowledge about the related entity could be, among others:
- transfer pricing documentation,
- CbC information,
- financial statements with a report and an auditor's opinion,
- ownership structure,
- an opinion of a representative of a public profession.
The CIT Act does not specify whether the net or gross amount is relevant for determining the threshold value. In this regard, by analogy with other provisions regulating the transfer pricing area, the net amount should be accepted as the threshold value.
Transfer pricing tax explanations
The dilemmas related to the discussed issue can be understood through the Tax Notes published by the Ministry of Finance, which are after public consultations but still before the publication of the final version. We should not expect any significant changes in their content after the consultations, which lasted until the end of January.
According to the Tax Notes, the PLN 500,000 limit mentioned above applies only to purchase transactions. Sales transactions are excluded from the calculation of this limit.
It is particularly useful to note the decision-making scheme entitled in the Tax Notes as the Verification of the reasons for the documentation obligation, which helps taxpayers exercise due diligence in applying the discussed issue.
The Tax Notes indicate information that may be helpful in verifying the counterparty, and these include:
- Central Register of Actual Beneficiaries in case of identification of the real owner of the polish entity;
- commercial registers containing, inter alia, information on partners of commercial companies, registration address, seat of the entity and place of business, personal and financial connections
- internal procedures aimed at verifying contractors before entering into commercial relations,
- procedure for the settlement of withholding tax;
- KYC procedures.
We recommend reading more about the tax explanations of the Ministry of Finance under the following link.
How to exercise due diligence?
The new obligations coming into force mean that taxpayers are obliged to exercise due diligence. Activities that will reduce the risk of preparing documentation consist of:
- collecting statements from contractors;
- development of a procedure for verification of contractors in terms of settlements with entities from so-called tax havens
- preparation of clauses in contracts enabling the acquisition of information necessary for the verification of contractors
- addition of appropriate provisions in the transfer pricing policy or other internal documents relating to the verification procedure and further proceedings in a situation where a contractor carries out transactions with an entity from the so-called tax havens.