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In the second part of our series of articles we describe the most important changes proposed under the project called "Polish Deal" connected with the topic of transfer pricing. These changes pertain to a number of acts, i.e. the PIT Act, the CIT Act, the Tax Ordinance, the Fiscal Penal Code. The description below presents a summary of the most important aspects in transfer pricing under the "Polish Deal".
Under the proposed changes, local transfer pricing documentation could be relieved of the mandatory comparative analysis or consistency analysis when the documented transaction:
- Meets the criteria for the safe harbour mechanism for controlled transactions constituting low value-adding services
- Is concluded by related entities which are micro enterprises or small enterprises under the definitions in the Business Law
- Is a transaction with a counterpart from a tax haven but not a related entity
- Is a transaction with an unrelated entity, where the counterparty’s beneficial owner is a resident of a tax haven.
In addition, in the case of a partnership agreement, joint-venture agreement or other such agreement, the analysis of transfer prices would cover mainly the established rules governing the rights of shareholders/partners and the rights of the parties to participate in profit or loss.
Adjustment of transfer prices
The bill would potentially allow a taxpayer to make a downward adjustment if the entity received accounting evidence from a related entity demonstrating that an adjustment of transfer prices has been made.
The proposal also abandons the requirement for the taxpayer to include information on adjustment of transfer prices in its annual tax return.
Financial safe harbour
Under the proposed amendment, the period for which the possibility of claiming the financial safe harbour would be the given tax year. Currently, this examination applies to the financial year. The time at which a given financing agreement would have to comply with the conditions established by the Minister of Finance under the financial safe harbour mechanism, in terms of the interest rate, would be any time when there is a change in the loan agreement. The existing regulations require an analysis of compliance with the conditions for the financial safe harbour at the time the financing agreement is concluded.
Exemption from the obligation to prepare transfer pricing documentation
The bill proposes a series of exemptions from the transfer pricing documentation obligations. Expansion of the catalogue of exemptions from the requirement to prepare local transfer pricing documentation covers situations where the given transaction:
- Is covered by the financial safe harbour mechanism
- Is conducted between foreign establishments located in Poland whose parent entities are related
- Is conducted between a foreign establishment in Poland of a related entity which is a non-resident, and a related entity with tax residence in Poland
- Is subject to a tax agreement
- Is subject to an investment agreement
- Is solely a reinvoicing transaction.
However, in the case of reinvoicing transactions, the following criteria would have to be met:
- The transaction generates no added value
- The transaction is settled without a markup
- No allocation key is applied to the settlement
- The settlement is not linked with performance of another controlled transaction
- The settlement occurred immediately after payment was made to the third party
- The related entity does not its residence, registered office or management in a tax haven.
Junior Transfer Pricing Specialist