Safe harbour for financial transactions

This article answers the following questions:

• What is a safe harbour?
• What criteria must be met to apply the safe harbour provisions in 2025?
• How to calculate safe harbour interest rates applicable to loan transactions?

At the end of 2024, the Polish Ministry of Finance published an announcement which should be of particular interest to taxpayers who would like to take advantage of the safe harbour rules for controlled financial transactions made in 2025. These rules are highly significant, since, as we have already mentioned in one of our previous articles, if a transaction meets the conditions for applying a safe harbour, preparing local file is not necessary. In this article, we will take a closer look at the conditions which must be met by transactions with related entities, so that taxpayers could take advantage of the benefit in question, and we will check how the Polish safe harbour rules operate in practice.

What conditions must be met by controlled transactions for the safe harbour provisions to be applicable?

Safe harbour mechanism is regulated by Article 11g of the Polish Corporate Income Tax Act (the CIT Act). 

Taxpayers can apply the safe harbour provisions for loans granted to a related entity if the controlled transaction meets the following criteria:

1. Annual interest on the loan as at the contract date is determined on the basis of the relevant base interest rate and margin specified in the announcement of the minister in charge of the public finance effective as at the contract date.
2. There are no other charges related to granting or servicing the loan than interest. These include fees and premiums.
3. The loan is granted for a maximum period of 5 years.
4. The maximum amount of total loans payable to or receivable from related parties in one tax year, calculated separately for granted and taken up loans, is PLN 20,000,000 or equivalent.
5. The lender is not an entity with a place of residence, registered office, or management in a tax haven territory or country.

The announcement of the Polish Ministry of Finance concerning transfer pricing regulations for safe harbour in 2025

The announcement of the Ministry of Finance states that for loan transactions made in 2025 to which taxpayers elect to apply the safe harbour rules, interest must be calculated on the basis of:

• WIBOR 3M or WIRON 3M Compound Rate – applicable to transactions denominated in Polish zloty (PLN);
• 90-day Average SOFR – applicable to transactions denominated in United States dollars (USD);
• EURIBOR 3M – applicable to transactions denominated in euro (EUR);
• SARON 3 months Compound Rate – applicable to transactions denominated in Swiss francs (CHF);
• SONIA 3M Compound Rate – applicable to transactions denominated in British pounds (GBP).

The maximum allowed margin for the borrower is 2.6 percentage points, while the minimum allowed margin for the lender is 2.0 percentage points. If the value of the base interest rate is less than zero, the margin is a total of the absolute value of the base interest rate and the value of margin.

Safe harbour for financial transactions in practice

Controlled transactions which meet the criteria for applying the safe harbour provisions and which were conducted up to and including 2021 require neither a benchmarking study nor a compliance analysis. For transactions which were made in 2022 and subsequently, this privilege is expanded by the exemption from the obligation of preparing the local file component of transfer pricing documentation. Still, the obligation of simplified reporting of such transactions on the TPR-C form continues to apply.

Taxpayers may be uncertain as to whether the interest on the loans must be set on the basis of a variable base rate or if it is possible to apply a fixed interest rate, for example WIBOR 3M, applicable as at the day preceding the loan contract date and a relevant margin for the entire term of the loan. 

As explained by the Head of the National Revenue Administration Information Centre (NRAIC) in its individual tax ruling with ref. no. 0115-KDIT1.4011.322.2024.2.MR, to apply the safe harbour provisions, the interest on the loan must be calculated on the basis of a variable interest rate. 

Tax authorities cited the Polish Order legislation in its statement of reasons, which provides grounds for the lack of the possibility to apply the safe harbour rules to loans with a fixed interest rate. The above position was also taken in the individual tax ruling with ref. no. 0111-KDIB1-1.4010.130.2022.7.SG in which the authority additionally stated that in applying the safe harbour rules, entities are not allowed to apply "the averaged WIBOR 3M rate being the arithmetic mean of several selected quotes", among others.

When setting the interest on controlled financial transactions in accordance with the currently binding announcement of the Ministry of Finance, taxpayers may apply the safe harbour provisions (and be exempt from the obligation to prepare local file) for five consecutive years. Therefore, it is not necessary to reset the interest rates annually on the basis of newly issued announcements of the Ministry of Finance. It must be emphasised, however, that if the interest on the loan changes (and an amendment to the contract is made consequently) with the intention to retain the safe harbour privilege, the amount of the new interest must be compliant with the announcement of the Ministry of Finance applicable as at the date on which the interest is changed.

It is also worth noting that when converting the loan amount from a foreign currency to PLN for the purpose of checking whether or not the limit of PLN 20 million is exceeded (Article 11g(1)(4) of the CIT Act), the loan amount must be converted at mid-rate published by the National Bank of Poland as at the last business day preceding the loan disbursement date and not as at the day preceding the contract date.

Transfer pricing documentation obligation is a complex problem

Despite the fact that there has been no major amendment to the safe harbour provisions in the context of financial transactions, taxpayers may still have a lot of doubts as to how to apply the Polish rules related to this issue. We hope that this article clarifies at least some of them. 

If you have any further questions, have a look at our transfer pricing Q&A or contact our tax advisors, who will be happy to clear up any doubts and assist you in properly fulfilling your reporting obligations.