Work is underway on the final version of the Polish Deal package. The proposed legislation has been passed by the Sejm and is now in the Senate to be discussed in session between 27 and 29 October. Below we outline the major changes proposed by the Sejm in relation to transfer pricing regulations.
The proposals below concern the Corporate Income Tax Act of 15 February 1992 (“CITA” or “CIT Act”) but similar amendments have also been passed in relation to the Personal Income Tax Act of 26 July 1991.
- Extended assurance under investment agreements – an investment agreement and a tax agreement will offer similar assurance as advance pricing agreements (APA): no tax authority will be allowed to assess tax (loss) to the extent income (loss) has been quantified in accordance with such an agreement.
- Simplified evidence of transfer pricing adjustments – an accounting document (note/invoice issued by the other party) has been added to the list of documents qualifying as evidence in support of transfer pricing adjustments between related parties. This is a taxpayer-friendly solution that reduces the administrative burden in relation to TP adjustment documentation.
- Deadline to prepare the local file is extended until the end of tenth month following the end of the tax year. Deadline to file transfer pricing report TPR-C is extended until the end of eleventh month following the end of the entity’s tax year. Deadline to submit local file at tax authority’s request is extended to 14 days. The transfer pricing documentation statement has been included in transfer pricing report TPR-C, which is to be submitted to local tax office and not to the Head of National Revenue Administration.
- It will not always be the case that VAT is not included in the value of the controlled transaction. Also, the value of controlled transaction has been more precisely defined for the deposit transaction and the partnership transaction.
Under current law VAT is excluded from the value of the controlled transaction. In accordance with the proposed changes, VAT will be included where it is not an input tax or the taxpayer has no option to recover it (it is not neutral). This will certainly complicate the controlled transaction quantification process used in the context of transfer pricing documentation requirements.
In addition, it has been provided that the value of a deposit transaction is to equal the amount of the principal while the value of a partnership transaction is to equal the total value of the equity contributions to the partnership. This refining amendment should be seen as desirable.
- Extended list of exemptions from the transfer pricing documentation requirement. The local file will not have to be prepared for controlled transactions which:
- are made between Polish-based permanent establishments of related parties which are resident or have their managements in the territories of European Union Member States or countries of the European Economic Area other than Poland, or between a foreign permanent establishment and a related domestic party;
- involve solely a recharge between related parties of expenses incurred for an unrelated party (reinvoicing), if the recharge does not include a profit mark-up, is not associated with some other controlled transaction, is made promptly on payment to the unrelated party and the other party is not based in a tax haven; if allocation keys are used, they must be explained;
- involve low value adding services, subject to conditions laid down in Article 11f CITA;
- concern a loan or bond issue enjoying the safe harbour for financial services.
- The fact that you report taxable income from fully or partially charge-free transactions will not bar you from making a representation that your prices are at arm’s length.
A provision has been added allowing a taxpayer to make an arm’s length prices representation in relation to prices applied in the taxpayer’s controlled transactions that are fully or partially charge-free, i.e. involve benefits obtained wholly or partially for no consideration. This is subject to a condition that the taxpayer must recognise taxable income from such transactions. The proposal can end the controversy surrounding this issue after certain tax rulings and an administrative court judgment appeared in 2020.
- The transfer pricing report may be signed by a designated member of the management board where the board consists of several persons, or by an agent who is an advocate, attorney-at-law, tax advisor or statutory auditor.
This simplification measure allows the transfer pricing report to be signed by a member of a multi-person management board (provided he/she is designated by the board). However, designating such a person does not shield the other board members from liability for failure to file the report. Also, the report still may not be signed by an agent, except where the agent is an advocate, attorney-at-law, tax advisor or statutory auditor.
In summary, the amendments which have been passed by the Sejm and transmitted to the Senate for further processing largely offer actual simplification of transfer pricing compliance procedures. With that said, some of them introduce burdens and impose additional duties on taxpayers.
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