Changes in transfer pricing under the "Polish Deal"

Until July 2^nd this year. pre-consultations were conducted, within which it was possible to submit comments and opinions on the planned changes.

The proposed amendments relate to the Act of February 15, 1992 on corporate income tax (i.e., Journal of Laws of 2020, item 1406, as amended - hereinafter referred to as the CIT Act) and the Act of July 26, 1991 on personal income tax (Journal of Laws of 2020, item 1426, as amended - hereinafter referred to as the PIT Act).

The document also includes amendments to the Act of August 29, 1997 - Tax Ordinance (i.e., Journal of Laws of 2020, item 1325, as amended) and the Act of September 10, 1999 - Fiscal Penal Code (i.e., Journal of Laws of 2021, item 408, as amended).

The main changes concern, among others:

• extension of deadlines for the fulfilment of transfer pricing obligations,
• definition of related entities,
• transfer pricing adjustments,
• Safe Harbour mechanism for financial transactions,
• local transfer pricing documentation.

As mentioned above, one of the key proposals of the Ministry of Finance (hereinafter also referred to as: the MF) is to extend the deadlines for the preparation of local transfer pricing documentation. The so-called Local File will have to be prepared by the end of the 10^th month after the end of the entity's tax year. In addition, the current deadline for submitting transfer pricing information (TPR) by the end of the ninth month after the end of the tax year will be extended to the end of the eleventh month after the end of the entity's tax year.

Thus, the deadlines for the preparation of the documentation and the completion of the related reporting elements will be separated. TPR itself is also to incorporate into its content a statement on the preparation of local transfer pricing documentation, thus becoming the only reporting element in this regard.

The MF also provides for the introduction of a facilitation for taxpayers by extending the deadline from 7 to 14 days for the submission of local transfer pricing documentation by the taxpayer at the request of the tax authority.

Moreover, the MF plans to extend the list of exemptions from the obligation to prepare local transfer pricing documentation. The current catalogue of exemptions from this obligation is to be extended to controlled transactions between foreign establishments located in Poland, whose parent units are related entities, and between a located in Poland, foreign establishment of a non-resident related entity and a related entity having tax residence in Poland. An important element of the introduced solutions is, among others the condition that all revenues and tax-deductible costs resulting from the controlled transaction should be settled for tax purposes in Poland. This means that in controlled transactions between foreign plants located in Poland, all revenues and costs from these transactions should be allocated to one or the other plant, respectively. On the other hand, in controlled transactions between a foreign plant located in Poland and a Polish entity related to the parent entity of the plant, the entirety of revenues or costs resulting from this transaction should be allocated to the plant. Such a provision implements the assumption that the exemption from the documentation obligation covers strictly internal transactions made and settled for tax purposes in the territory of Poland.

The proposed regulations also provide for an exemption from the obligation to prepare local transfer pricing documentation for controlled transactions covered by the tax agreement and the investment agreement. This solution is consistent with the current exemption for controlled transactions covered by the advanced pricing agreement (APA).

The proposed amendments to the PIT and CIT Acts also include solutions aimed at facilitating the preparation of local transfer pricing documentation, limiting its scope. Local transfer pricing documentation will not need to include a benchmarking or compliance analysis in the following cases:

• controlled transactions that meet the safe harbour exemption criteria for controlled transactions that are low-value services (regulation currently in force),
• controlled transactions concluded by related entities that are micro or small entrepreneurs within the meaning of the Entrepreneurs' Law,
• transactions other than controlled transactions, which are subject to the documentation obligation, concluded with the so-called tax havens or in which the actual owner of the contractor is a resident of the so-called tax havens.

Importantly, the planned amenities for micro and small entrepreneurs, as well as transactions with the so-called tax havens will also apply to transfer pricing documentation prepared for the tax year beginning in 2021.

The full list of proposed changes is presented in the document "Tax Pre-consultations: Changes in the transfer pricing regulations" published by the Ministry of Finance on the government website gov.pl.

Downloads

• PKF Alert - Changes in transfer pricing under the Polish Deal.pdf [PDF]