This is to let you know that the Finance Ministry has published draft TP guidance on transfer pricing adjustments (“Proposal”). The Proposal refers to the transfer pricing adjustment regulations in force as of 1 January 2019 (i.e. Article 11e of the CIT Act and Article 23q of the PIT Act).
See below for the salient issues discussed in the Proposal:
- A transfer pricing adjustment is made to ensure that a transfer price applied with respect to a given period (e.g. quarter, half-year, year) is at arm’s length. Such an adjustment should generally be made before submission of the annual tax return for the year in question and should not refer to any period longer than one tax year.
- Adjustments arising from such events as changes in supply volumes or scope, returns, product or service complaints, discounts or rebates are not transfer pricing adjustments.
- A transfer pricing adjustment is retroactive, meaning that it adjusts a historic transfer price. As such, transfer pricing adjustments do not change prices of future transactions to be carried out in subsequent periods of account (e.g. pricelist updates for next month, quarter, year).
- Whether or not an adjustment is a transfer pricing adjustment should be determined on the basis of its economic substance, not on the basis of the form of its underlying document. Thus, such an adjustment may be evidenced by a correcting invoice, a summary correcting invoice or even an accounting note.
- Transfer pricing adjustments may be made only by reference to transactions which were originally at arm’s length in the first place. Thus, it is already when entering into a controlled transaction that the related parties should assess to the best of their knowledge (including by reference to available comparables) whether such transaction terms would be agreed between independent parties. Assessments of this kind can be evidenced, for example, by an agreement between the related parties which would regulate transfer pricing details, by a transfer pricing policy, or by a comparability analysis.
- A transfer pricing adjustment is made following a change of important circumstances affecting the terms of the transaction or when actual costs or revenues are known. Examples of the former situation include, without limitation, price changes on commodity markets, exchange rate fluctuations, interest rate changes, variations in demand or supply. The other situation refers to models where transfer prices applied during the year are based on budgeted figures.
- In the case of downward transfer pricing adjustments (those decreasing income), the taxpayer should hold a representation of the related party that the latter has made a corresponding adjustment for the same amount. While the CIT Act does not prescribe a form for this representation, it is accepted that it should be made in writing.
The proposed document was discussed during the 10th Transfer Pricing Forum. A number of constructive proposals were raised which we hope will find their way into the final version of the guidance.
See the link below for the full text of the Proposal (in Polish):
If this issue pertains to your business and you are interested in our assistance, please contact your WTS&SAJA consultant.
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