Transfer pricing - another draft of the explanations of the Ministry of Finance

From January 1, 2021, the provisions on transfer pricing relating to haven transactions have been extended to include the documentation obligation provided for:

- controlled transactions or transactions other than controlled, if the beneficial owner has a place of residence, registered office or management in the so-called a tax haven, and the value of such a transaction in the financial year exceeds PLN 500,000 net.

At this point, the legislator introduced a presumption that the actual owner has a place of residence, seat or management in the so-called tax haven in a situation where the contractor of a taxpayer or a company that is not a legal person makes settlements in the tax year with an entity having its registered office or management in the so-called tax haven.

During this period it was reasonable to suppose that the above-mentioned presumption would require explanation. And so it happened - on December 21, 2021, the Ministry of Finance published a draft tax explanations on transfer pricing for the obligation to prepare local transfer pricing documentation for the so-called indirect haven transactions, as referred to in art. 11o paragraph. 1a and 1b of the CIT Act and Art. 23za. paragraph 1a and 1b of the PIT Act.

According to them, the taxpayer should first verify that his contractor is the real owner. If this circumstance is confirmed, the taxpayer is not required to prepare the documentation. However, when the taxpayer does not obtain information indicating that the other party to the transaction is the beneficial owner, or that it is not the beneficial owner, he should then verify whether the beneficial owner is the entity of haven. Only when the taxpayer does not collect sufficient information to determine the residence of the beneficial owner, should he proceed to the verification of the basis of the presumption.

In all this, the Ministry emphasizes the need to exercise due diligence, both in identifying the real owner and in the above-mentioned grounds for presumption.

As indicated: "to exercise due diligence when making transactions with unrelated entities, regardless of their place of residence, it is sufficient for the taxpayer to obtaina declaration of knowledge from the other party to the transaction, which shows that the other party to the transaction does not make any settlements in the taxpayer tax year, with the haven entity".

However, practice shows that the standard of due diligence is in many cases impossible to meet for purely objective reasons. The taxpayer has no possibility to force the contractor to submit such a declaration. It must be based on his goodwill and willingness to cooperate.

It would seem reasonable to introduce practical examples of less formalized information that can be used as evidence.

Let us remember that public consultations regarding these provisions last until the end of January. As a result, we will soon find out what additional obligations we will be obliged to fulfil only in order to fulfil one more obligation, the transfer pricing documentation obligation.

Downloads

• PKF Alert - Transfer pricing - another draft of the explanations of the Ministry of Finance.pdf [PDF]