Tax Partner at RSM Poland
The Ministry of Finance (hereinafter: MF) has just published their proposed amendments of transfer pricing regulations under the Polish Deal. The goals behind the suggested amendments are, among others, to make it easier for taxpayers to meet their reporting obligations and simplify the local file.
According to the amendments suggested by the MF, the deadline for preparing the Local File shall be extended by one month. Under the regulations in force, taxpayers are obliged to prepare their Local File by the end of the ninth month after the end of the entity’s tax year (due to COVID-19, this deadline has been temporarily extended).
What is more, the MF also suggests extending the deadline for submitting the Local File upon request of a tax office from 7 to 14 days. In this field, what could come as a helping hand for taxpayers, as well, is the extension of the deadline for submitting their transfer pricing information (TPR form): it would be possible to file this information by the end of the eleventh month after the end of the entity’s tax year.
This amendment would surely make submitting the transfer pricing information more rational, in particular if you consider the fact that the TPR form is being completed and submitted by taxpayers on the basis of the transfer pricing documentation they have already prepared. What should be mentioned here is that the suggested amendments include abandoning the statement on transfer pricing documentation as a separate document and including it, in amended form, into the scope of transfer pricing information. As a result, the taxpayer would submit a single integrated form.
Changes of the local file
The MF deserves credit for suggesting amendments aimed at limiting the obligation to prepare benchmarking studies and compliance analyses. These modifications shall apply to:
- entities being micro or small enterprises,
- transactions other than controlled transactions, which are concluded by taxpayers with entities being residents of tax havens.
The draft amendments proposed by the MF also involve a complete exemption from the obligation to prepare a Local File for transactions between related entities covered by:
- safe harbour mechanism for loans, credits and bonds,
- tax agreement or
- investment agreement.
In addition, this exemption is also supposed to include transactions of pure re-invoicing; however, the exemption from the documentation obligation shall be limited only if the following conditions are jointly met:
- no added value may arise and the settlement cannot involve any margin or mark-up,
- the settlement cannot involve any allocation key,
- the settlement cannot be related to any other controlled transaction,
- the settlement must occur immediately upon payment to the unrelated party,
- the related party must not be an entity with a place of residence, registered office or management in a territory or country that applies harmful tax competition.
Transfer pricing adjustments
The MF is also planning to simplify the regulations on transfer pricing adjustments. In line with the regulations in force, in order to make an effective downward adjustment, the taxpayer must be in possession of a statement from a related party that this entity has not made any transfer pricing adjustment in the same amount as the taxpayer. Under the amendments proposed by the MF, taxpayers shall have the right to rely on accounting documents that confirm that the related entity has adjusted their transfer prices. Moreover, taxpayers shall no longer be required to confirm the adjustment in their annual financial statements.
Summary of amendments under the Polish Deal:
- longer deadlines for preparing the Local File (10 months) and transfer pricing information (TPR-C) (11 months),
- no obligation to prepare a Local File for transactions that comply with the safe harbour principles and for re-invoices,
- reduced requirements for including downward transfer pricing adjustments,
- incorporating the management’s Local File statement into the transfer pricing information (TPR-C).
Wrap-up: evaluation of suggested regulations
The draft amendments of transfer pricing regulations presented by the MF as part of the Polish Deal should certainly be assessed positively. Taxpayers will have more time to prepare their Local File, which seems particularly important if you realise that the access to relevant comparables is often limited. What is more, taxpayers are going to have two months more, as compared with the current regulations, to meet the obligations related to their transfer pricing reporting, as it shall be integrated with the statement on the Local File.
Other amendments should also contribute to reducing the administrative burden on taxpayers.
For the time being, we can only hope that the announced amendments will be directly reflected in the legislation and will come into effect soon.