Transfer pricing documentation

The Ministry of Finance 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.

Changes concerning transfer pricing in transactions with tax havens, effective as of 1 January 2021, will be challenging for taxpayers. Under the new regulations, there is an obligation to have verify whether transactions where the beneficial owner has its place of residence, registered office or management in a tax haven comply with the arm’s length principle (and it is unclear whether the legislator means the actual owner of our contractor or the cash flow generated as a result of a given transaction, as the regulations fail to specify this). What is more, taxpayers must provide economic justification for their transactions with tax havens.

The tax authority, to apply the 50% punitive rate for the upward adjusted  profit between related entities, has only 3 years after the end of the calendar year when the tax liability arose. After that time, until the expiry of 5 years from the end of the calendar year when the tax liability reached its maturity, it may only apply the basic rate of 19%. Such conclusions can be drawn from the judgment of the Supreme Administrative Court of 13 October 2016, ref. No. II FSK 2288/14. 

The issue of changes in transfer pricing has been discussed for a long time now. The pompously announced revolution in transfer pricing has finally occurred – from the beginning of 2017, new regulations for determining the entities obliged to prepare tax documentation have been introduced along with a different than before method of qualifying the transactions that should be included in the transfer pricing documentation.