Tax Supervisor at RSM Poland

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.

There are as many opinions as people on the issue whether the new regulations are better or worse than the previous ones. However, we need to do justice to the legislator in one aspect – taxpayers have been provided really a lot of time – more than a year – to prepare for the new obligations related to the documentation of transactions with the group’s entities. Given the recently presented style and speed of introducing tax regulations, it is worth noting that it is not a standard procedure at all...


When putting together all the pros and cons, the new regulations on transfer pricing should be assessed positively in spite of everything. According to the Polish school grading system, the amendment deserves a grade of 4. Although it is true that for some taxpayers preparing the tax documentation will be associated with more work (and probably greater costs), which is due to the extension of the documentation obligation also by a comparative analysis and group documentation, but at the same time the group of entities required to prepare the documentation will be significantly reduced. Those taxpayers who operate on a larger scale (income/balance sheet expenses threshold of EUR 2 million) have to wonder whether they will be obliged to prepare the documentation, and if so – what should actually be included in the tax documentation. Smaller companies, in spite of conducting transactions with related entities, do not have to worry at all about the issue of transfer pricing.

Another aspect that deserves approval is the increase of the threshold (from 5% to 25%) of the owned shares of another entity that determines the existence of equity links between the two entities. The previous level of 5% was a kind of curiosity in the international arena. Most OECD countries recognized companies as affiliated entities only at the moment of achieving at least 25% of the share in the capital of another entity.

Still, it is not all rosy, as also a number of drawbacks in the construction of the new regulations on transfer pricing have to be specified. What may become problematic is the definition and identification of other economic events recognized in the accounting books, or the determination of transactions and events that have a significant impact on the income of the taxpayer, which are covered by the documentation obligation. Unfortunately, those areas may be subject to a very pro-fiscal interpretation of the regulations by the tax authorities.


Fortunately, now we may stop agonizing about the deadline for preparing transfer pricing documentation – during a fiscal year, after its end or perhaps only after receiving a request from the control body? The new regulations on transfer pricing clearly indicate that the documentation should be drawn up following the deadline of submitting the annual tax return, i.e. no later than within 3 months from the end of the tax year. In practice, it means that taxpayers, apart from the obligation to submit an annual tax return, will be additionally obliged to submit at the same time a declaration of preparing tax documentation. The violation of this provision will be the basis to extrude sanctions against the persons responsible for the tax settlement of an entity – both those who submit false statement and those who, despite the obligation, do not submit it at all. Such persons may be brought to justice under the Fiscal Offences Act.


What taxpayers can do now and what they should start with is to examine whether their income/balance sheet expenses for 2016 have exceeded the threshold of EUR 2 million. If so, the taxpayer will have to face the new regulations in the field of transfer pricing. Then the taxpayer should analyse in detail the new regulations and assess the scope of tax documentation – whether it will be just "local", or including a comparative analysis, and perhaps even the group documentation? At the moment it is impossible to indicate explicitly which transactions or other events recognized in the accounting books of 2017 should be described in detail in the documentation. However, based on 2016 and business activities planned for the current year, it is possible to make a preliminary classification of transactions with related entities, which will be covered by the documentation obligation. And here the question arises – will the taxpayers manage to deal with all those doubts and obligations alone, or should they opt for the help of a tax adviser? Whatever the answer, one thing is certain – it is not worth waiting to make the decision till the end of 2017. The process of gathering the necessary information and preparing documentation on the basis of the new regulations will be counted in months rather than in weeks as it was before.

Anyway, the turn of 2017/2018 promises to be hectic and guarantees that the staff of the finance and accounting departments will have their hands full. Year-end closure, financial statement audit, preparation of income tax calculation and annual tax return, and, as if that were not enough, transfer pricing documentation... But maybe the devil is not so black as he is painted?