1. How should I know if the obligation to prepare TP report applies to me?
The specification of the obligation to prepare TP report depends, first of all, on the identification of the period that the possible TP report would apply to, as starting from 1 January 2017, regulations on the classification of entities as related entities and activities subject to obligation to prepare TP report have been changed. Detailed information can be found in part OBLIGATION TO PREPARE TRANSFER PRICING REPORT.
2. What changes were introduced in 2017?
First of all, the percentage level of share determining the existence of capital links between companies was increased (from 5% to 25%). Moreover, the obligation to prepare TP report now rests only with the taxpayers whose accounting revenue (expenses) calculated for the previous fiscal year exceeded the level of EUR 2 million. Transaction thresholds are calculated depending on the level of those revenues (expenses). In addition, with the increasing level of revenue (expenses), the scope of provided information and the level of detail of the prepared TP report increase. The obligation to review and update the TP reports continued into the following fiscal year of the transaction is also provided for.
3. Do the transaction thresholds correspond to net or gross transaction values?
The wording of the CIT Act and the PIT Act regulations does not prejudge whether during the calculation of the transaction limits the net or gross (including VAT) amount of the transaction value should be taken into account. The analysis of the phrases used by the legislator suggests that gross amounts should be considered, as both the total amount resulting from the contract is usually the amount increased by VAT and the actually paid amount of the required benefits is, in principle, the amount including tax. Such an approach certainly reduces the risk of a possible dispute with the tax authority.
4. What elements should the correctly prepared TP report include?
This depends on the period for which it is prepared. Details can be found in part TRANSFER PRICING REPORT.
5. Is the comparative analysis mandatory?
Preparation and attaching of the comparative analysis (so-called benchmark) to the TP report has been mandatory since 1 January 2017 for taxpayers whose accounting revenue or expenses exceed EUR 10 million. And in relation to the TP reports analysing the transactions made prior to that date, the preparation of the comparative analysis was not required. However, attention should be paid to the nature of the transfer pricing report. Its essence is not only a detailed description of the transaction between related entities, but also the demonstration that the price agreed by the parties is a market price. Therefore, supplementing the TP report with the comparative analysis, even if it is not required by tax law, additionally strengthens its guarantee function, i.e. reduces the risk of any possible questioning of the price used in the transaction by the tax authority.
6. Must the transfer pricing report be prepared in Polish?
Yes, the transfer pricing report should be prepared in Polish.
7. What is the deadline for the preparation of the TP report?
Before 1 January 2017, regulations failed to indicate a specific deadline in which the taxpayer was obliged to prepare the TP report. Nevertheless, in the opinion of tax authorities and administrative courts, it should be prepared on an ongoing basis. Since 1 January 2017, the deadline for drawing up TP report is the date of submitting the tax return for the fiscal year.
8. What is the deadline for the presentation of the TP report?
The taxpayer is obliged to submit the TP report at the request of tax authorities within 7 days from the date of the receiving the request sent by them.
9. Do I have to deliver it in person or can I send it by mail?
The TP report may be submitted in person at the tax office and it may be sent by traditional mail through the post office of the public operator. However, it is important to remember the statutory deadline for its submission. In case of sending the TP report by post, decisive shall be the postmark date of the entry postal facility on the envelope, in which the TP report is sent to the competent authority.
10. Can the 7-day deadline be extended in any manner?
No. The deadline for the TP report submission is 7 days from the date of delivery of the request by the authorised body and there is no legal possibility to extend it.
11. What is the penalty for the lack of TP report or for the submission of the TP report that fails to meet the requirements?
A taxpayer who fails to submit the transfer pricing report at the request of the tax authority within the statutory deadline, i.e. within 7 days, or who submits TP report that fails to meet the requirements set forth in regulations, and therefore incomplete and defective TP report, is exposed to the possibility of being imposed the 50% punitive tax rate (in relation to the difference between the income determined by the tax authority and the income declared by the taxpayer) and fiscal penal liability (attributed to natural persons: e.g. the management board members).
12. When can tax authority adjust taxpayer's additional taxable income upwards?
Tax authority has the right to adjust taxpayer's additional taxable income upwards in case when the conditions determined in the transactions between related entities differ from those that independent entities would have applied. Therefore, when the taxpayer fails to recognise income or when the income is recognised in the underestimated amount, the tax authority is entitled to estimate the income with the use of the appropriate method determined in the CIT/PIT Act.
13. Should the TP report be updated?
The legislator provides for a necessity to perform a periodic review and update of the TP report relating to the transactions or other events that continue into the next fiscal year – at least once per fiscal year – before the expiry of the deadline for submission the tax return for the following years. In the case of comparative analysis the update should be performed at least once per 3 years. However, in the event of economic circumstances affecting the analysis, the review should be performed in the year when the change of conditions occurred.
14. Which countries are referred to as tax havens?
Tax havens are countries and territories applying harmful tax competition, both with respect to personal income tax and corporate income tax. It is deemed that in the tax systems of these countries and dependent territories there are favourable tax conditions for non-residents, which can promote transferring profits by Polish taxpayers precisely to those countries (territories). According to the Regulation of the Minister of Finance, the following countries (territories) are tax havens:
15. Transactions between the headquarter and a permanent establishment/branch - is there an obligation to prepare TP report?
Transactions between a foreign entrepreneur and a permanent establishment (e.g. a branch) located in Poland, and since 1 January 2015 also permanent establishment of the Polish entity located abroad, have been subject to the obligation to prepare TP report.
16. Is a partnership required to prepare the TP report?
Since 2015, when regulations on transfer pricing changed, according to the legislator's assumption, the obligation to prepare TP report has been supposed to cover also partnerships. The analysis of the introduced regulations does not clearly lead to such a conclusion, however, taking into account the current practice, a partnership should also prepare the TP report of transactions with related entities.
17. My mother company has the master file. Do I need Polish TP report?
Yes. The master file is prepared from the perspective of the entire capital group and very frequently, it does not include all the information that is required by the Polish law governing the subject of transfer pricing. And a taxpayer may use such master file as a basis and make appropriate additions so that it could correspond to the Polish law concerning the TP report. Moreover, since 1 January 2017, master file has been a mandatory element of the TP report for taxpayers whose accounting revenue (expenses) exceeded EUR 20 million.