This is to let you know of a tax ruling issued by Director of National Revenue Information (“Ruling Authority”) on 18 June 2024 (ref. 0111-KDIB2-1.4010.173.2024.2.KK).
The applicant in the case was a limited partnership which asked if a limited partnership and its limited partner are related (associated/connected) persons for the purposes of transfer pricing regulations where the persons serving in the partnership as general registered agents (Procurist) with independent powers are related to its general partner (by exercising significant influence).
The Ruling Authority held that in this case association exists due to the status of the partnership’s general registered agent. The key factor is that where such a general registered agent has independent powers, he or she is authorised to manage the represented entity. The position was that what is meant by “exercising significant influence” is not just formal powers (such as those gained through sitting on the management or supervisory board) but also actual impact on business decision-making or control of the associated entity. A general registered agent actively takes an actual part in managing the entity even though he or she may be dismissed with relative ease and does not independently make strategic decisions that are beyond ordinary course of business.
The law does not expressly mention the Procurist status as a trigger of associations within the meaning of transfer pricing regulations. With that said, it is important to note that, in addition to capital associations and personal associations as triggers, the law also introduces an open-ended test of significant influence. This test should be borne in mind when establishing associations, which – given the subject ruling – is especially important for general registered agents with independent powers.
The ruling is another sign that the test of having an actual ability to exercise significant influence should be taken broadly, thus making it easier for transfer pricing documentation requirements to be found applicable. What turned out to be conclusive specifically in the case with which the ruling was concerned was that there was a general registered agent with independent powers that was associated with a partner.
If this issue pertains to your business and you are interested in our assistance, please contact us.
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