The Ministry of Finance continues its effort to tighten up the tax system and addresses the growing need to adjust and align definitions of transfer pricing with international standards. Solutions put forward by the Ministry are supposed to cover not only regulations on transfer pricing documentation, but also introduce a number of definitions concerning transfer pricing as those in place now have offered room for different interpretations. Such extensive changes are going to be included in a new and separate chapter, both in the PIT Act and the CIT Act. What is more, CIT/TP or PIT/TP statements are going to be replaced by electronic reporting in the form of TP-R.
Major changes will include, among others, increased value thresholds for related party transactions that introduce the obligation to submit a local file. The legislator has defined two thresholds, one in the value of PLN 10 million and the other of PLN 2 million (current thresholds are from EUR 50,000 to EUR 500,000). This will result in a reduced administrative burden for taxpayers for which a given type of transaction was relatively small in volume. What is also going to be introduced is a new mechanism for defining thresholds. They are supposed to be determined separately for each related party transaction within different categories (like e.g. services or fixed assets). The draft act also includes provisions on determining the value of transactions that are similar in nature. The legislator indicates that for the purposes of defining the local file obligation, transactions made with a couple of related entities, concerning e.g. the sale of the same goods, shall be recognised as a single transaction, regardless of the number of accounting documents issued.
The new regulation addresses the obligation of preparing (having) the master file, as well. This shall pertain to related entities that are members of a capital group for which a consolidated financial statement is prepared and whose consolidated revenue exceeded the value of PLN 200 million. This regulation is going to allow for using single documentation for the entire group, also in English. However, upon request of the tax authority, the documentation in English shall be translated into Polish (within 30 days).
Responding to the reservations reported by taxpayers, the legislator is going to permanently extend the deadline for submitting a declaration about the local file and the information on transfer pricing. This deadline shall be extended from 3 to 9 months after the end of the tax year. The deadline for preparing the master file, however, shall be 12 months after the end of the tax year. In addition, under the draft act, the declaration concerning documentation shall be signed by an authorised representative named in the registers.
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The legislator has also addressed the issue of contents of transfer pricing documentation. It shall be obligatory for any local file documentation to include a transfer pricing analysis including a benchmarking study (or an analysis of compliance of a related party transaction conditions with the arms’ length principle). Detailed elements of this analysis shall be defined under implementing rules. What should also be mentioned is the provision exempting the taxpayer from the benchmarking analysis obligation for certain types of transactions, namely routine ones (not involving any greater risk of understating the revenue) or qualified as having non-tax revenues or costs.
In addition, the draft act provides for using safe harbours for loans and low value-adding services. The taxpayer opting for this solution would be safeguarded against any overestimation of the price in group transactions by the tax office. However, there are a number of conditions that must be met for the aforementioned solutions to be used. Taxpayers using safe harbours for low value-adding services shall be obliged, among others, to have a detailed calculation presenting the type and amount of costs included in the cost base and to determine the method of use along with a justification of the choice of the allocation key for all affiliated entities using the services. What is more, using safe harbours is going to involve reduced documentation burden for the taxpayer (no benchmarking study requirement). For loans, simplifications are about the interest calculated in line with the notice of the Minister of Finance (interest rate increased by a margin).
The draft act also defines the detailed conditions for transfer pricing adjustments. According to the explanatory memorandum to the draft act, the legislator is planning to introduce mechanisms securing the tax revenue of the Treasury to prevent any potential abuse of this mechanism by taxpayers. The conditions introduced in this respect include using arm’s length prices by the taxpayer already during the tax year to the best of their knowledge and experience, or the obligation to make an adjustment by the deadline for submitting the annual tax return or submitting the adjustment by the affiliated entity which must additionally confirm it to the taxpayer.
The draft act provides for many other changes; yet, those discussed above are surely the most interesting. The new act is supposed to enter into force on 1 January 2019. However, it should be added that the legislator is planning to allow taxpayers to implement changes provided for under the new act also in respect of related party transactions concluded in 2018, provided that this solution is a better deal for the taxpayer.
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