This is to let you know that 5 March 2021 saw the launch of tax consultations on draft transfer pricing guidance on the presumption and due diligence provisions in CIT Act Article 11o(1b) and PIT Act Article 23za(1b).
The proposed guidance would apply to the transfer pricing provisions in CIT Act Article 11o(1a) and 11o(1b), which have been in force since 1 January 2021 and which provide that:
- a local file must be prepared by an entity whose transactions exceed PLN 500,000 if the beneficial owner is resident in a tax haven;
- the beneficial owner will be presumed to be resident in a tax haven if the other party to the transaction has settlements during the financial year with an entity resident in a tax haven;
- a due diligence investigation must be held to establish those circumstances.
The guidance addresses these rules as follows:
As regards presumed tax haven residence:
- Any settlements are relevant for establishing if the other party has settlements with a haven-based entity, i.e. it is sufficient that any accounts (receivables/liabilities) are settled during the year.
- If it is established that the other party has settlements with a haven-based entity, the beneficial owner will be presumed to be resident in a tax haven.
- In order to rebut the presumption, you will have to prove the opposite, i.e. that the beneficial owner is not a haven-based entity. If this presumption is successfully rebutted, there will be no need to prepare a local file.
As regards taxpayer’s due diligence:
- To establish whether the other party has settlements with a haven-based entity during a financial year, you can rely on anything lawful that will be conducive to clarifying this issue.
- For transactions with unrelated parties, regardless of their residence, it will be sufficient to obtain a statement from the other party to the effect that the other party has no settlements with a haven-based entity during the given financial year.
- Due diligence cannot be deemed to have been exercised where information was available to the taxpayer based on which he knew or ought to have known that such a statement is untrue. In such a case, reliance on a statement which the taxpayer knew or ought to have known is untrue will come short of the due diligence standard.
- The statement should be in writing.
- The statement refers to settlements during a financial year and as such should be obtained ex post after the end of the year. The parties may enter into an advance agreement imposing an obligation to make such a statement.
- In relations between related parties, in addition to such a statement, the due diligence standard requires a verification of information obtained from the related party, including for example:
– TP documentation (local file, master file),
– CbC-R report,
– financial statements with statutory auditor’s opinion and report,
– ownership structure,
– opinion by a member of a profession of public trust (e.g. statutory auditor, advocate, tax advisor). - If the taxpayer establishes with due diligence that the other party has no settlements with a haven-based entity, the taxpayer will not prepare a local file for its transaction with the other party.
The tax consultations process will continue until 20 April 2021. We will get in touch with you to discuss the proposed guidance and receive your comments as to its practical compliance implications. Also, if you are interested in our assistance, please do not hesitate to contact us.
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