This is to draw your attention to Finance Minister’s response of 22 August 2020 to parliamentary question no. 9368 as to whether or not it is necessary to report a dividend distribution to an associated enterprise.
On the face of it, the question seems to be peculiar in the context of both purposive and systemic interpretation of transfer pricing regulations. After all, dividends are paid out of after-tax profit while transfer pricing documentation should essentially have the purpose of proving that the connections between associated enterprises have not caused any taxable income to be understated.
With that said, the response provided by Finance Vice-minister Jan Sarnowski is the first formal construal of the term “controlled transaction”, which is crucial for identification of the documentation requirement.
In accordance with Article 23m(1)(b) of the PIT Act and Article 11a(1)(6) of the CIT Act, a controlled transaction means „business operations that are identified on the basis of actual conduct of the parties involved […] and whose terms have been determined or imposed due to associations”.
Vice-minister Sarnowski made a point of noting that, generally, an operation has business nature when it is carried out for gain. He also said that while dividend is consideration for provision of capital, profit as well as its appropriation and payment result from business activities (e.g. manufacturing, services, trade) and are not of themselves business operations. To quote Mr Sarnowski, “… a business activity is made up of business operations (conducted for gain).”
We should hope that this response will lay foundations for a clear position that, according to statutory construal, transfer pricing documentation is not required for equity operations intended to formally structure the business activities of a given entity.
For the full response of the Finance Minister (in Polish), click the link below:
If these issues pertain to your business and you are interested in our assistance, please contact your WTS&SAJA consultant.
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