Junior Tax Consultant at RSM Poland

In today’s article we would like to give you some insight into transfer pricing adjustment regulated directly by the legislator in Article 11e of the Act of 15 February 1992 on Corporate Income Tax (hereinafter: CIT Act) and, respectively, Article 23q of the Act of 26 July 1991 on Personal Income Tax (hereinafter: PIT Act). We are also going to discuss the position of the tax authorities presented in relevant advance tax rulings that have been issued recently.


Firstly, we would like to remind you that the time of recognising revenue or cost adjustments has been regulated in the provisions in force since early 2016, i.e. in particular in Article 15 par. 4i and Article 12 par. 3j of the CIT Act / Article 22 par. 7c and Article 14 par. 1m of the PIT Act, whereas the amendment of 23 October 2018 has introduced a clear rule set forth in Article 11e of the CIT Act / Article 23q of the PIT Act, where a transfer pricing adjustment is either revenue or a tax-deductible cost, as appropriate, and is recognised in the year it adjusts, provided that all of the following conditions are met:

  • the requirement to apply arm’s length pricing already during the fiscal year;
  • any change of material circumstances affecting the conditions agreed in the course of a fiscal year or information about actually incurred costs or generated revenues being the basis for transfer pricing calculations, where ensuring their compliance with conditions that would be agreed by non-related entities requires transfer pricing adjustment;
  • the entity being the other party to the transaction has made an adjustment and it is confirmed in a statement that this entity has made a transfer pricing adjustment in the same amount as the taxpayer;
  • adjustments are only made with related entities having their place of residence, registered office or the management board on the territory of Poland or in a state or on the territory with which Poland has concluded a double taxation treaty and there is a legislative basis for exchanging tax information with this state;
  • the requirement to confirm transfer pricing adjustment in the tax return for the fiscal year that is being adjusted.
Afraid of overvaluing your income from transactions with related parties?

This rule is a lex specialis in respect of Article 15 par. 4i and Article 12 par. 3j of the CIT Act / Article 22 par. 7c and Article 14 par. 1m of the PIT Act.

What is important is that the aforementioned regulation applies to adjustments of controlled transactions concluded since 1 January 2019. This means that any transfer pricing adjustments made in 2019 but pertaining to transactions or other events concluded in 2018 (i.e. by 31 December 2018), should be recorded for income tax purposes according to rules and principles set forth in the regulations in force until the end of 2018. This position has also been confirmed in the Ministry Communication.

Objective of adjustment

Any transfer pricing adjustment results from circumstances, either during or after the fiscal year, that could not have been known to the parties to the transaction at the time of transaction planning, and which made it necessary to bring the original transfer price in line with the arm’s length principle. This has been confirmed by the Director of the National Revenue Administration Information Centre (hereinafter: DKIS), among others in advance tax ruling of 24 June 2019 ref. no. 0111-KDIB1-2.4010.98.2019.5.AW. In other words, any transfer pricing adjustment is made by the taxpayer on a voluntary basis, primarily in order to apply arm’s length pricing as provided for in Article 11c of the CIT Act / Article 23o of the PIT Act. In tax ruling of 7 April 2020 ref. no. 0114-KDIP2-2.4010.47.2020.1.SJ, the DKIS agreed with the position of the taxpayer, who argued that if the objective of the adjustments is to meet the criteria set forth in Article 11c of the CIT Act, by way of the correct application of the reasonable cost method, the taxpayer determining the amount of revenue for a given year should include any increase or decrease of revenue resulting from income adjustments for this year.                                                                                            

True-up adjustment

It is a common practice for companies from capital groups to rely in their transactions on a model based on projected costs defined on the basis of budget data including historical costs. In such a case, there may be differences at the end of the year or the quarter (depending on whichever is applied) resulting from a comparison of historical (budgeted) and actual costs. In order to bridge the gap between the anticipated and actual profitability so that transfer pricing is at arm’s length, the taxpayer may apply transfer pricing adjustment pursuant to Article 11e of the CIT Act. This has been confirmed by the DKIS, among others in the aforementioned advance tax ruling of 7 April 2020 ref. no. 0114-KDIP2-2.4010.47.2020.1.SJ.

A true-up adjustment may be:

  • in plus (upward), increasing the financial result accordingly by reducing costs or increasing revenues, or
  • in minus (downward), decreasing the financial result accordingly by increasing costs or reducing revenues.

This results directly from the regulations (Article 12 par. 3aa and Article 15 par. 1ab of the CIT Act / Article 14 par. 1ca and Article 22 par. 1ab of the PIT Act) and has been confirmed in advance tax rulings of the DKIS, among others in that of 3 January 2020 ref. no. 0111-KDIB3-1.4012.754.2019.1.KO and that of 8 May 2020 ref. no. 0111-KDIB2-1.4010.55.2020.2.MK.

Transaction adjustment

Transfer pricing adjustment may also pertain to profitability from the sale of different types of goods or services: this is confirmed in the advance tax ruling of the DKIS of 24 June 2019 ref. no. 0111-KDIB1-2.4010.98.2019.5.AW, which has already been mentioned here. The adjustments in question are usually made as a result of benchmarking and are aimed at bringing the transactions between related entities in line with the terms and conditions that would be agreed between unrelated parties.

Change of economic conditions as the reason for transfer pricing adjustment

The reason for transfer pricing adjustment may be a situation where the economic conditions have changed during a given year, and this change could not have been predicted at the time of planning the transfer pricing for this year. In the rationale to the amendment of 23 October 2018, the legislator stated that such circumstances may include changes of market prices of basic raw materials or materials, currency fluctuations, changes of interest rates or significant fluctuations of the demand or supply of a given product caused by factors beyond the control of parties to the transaction. In such case, the adjustment is made in order to bring the financial result in line with the market.

Transfer pricing adjustment vs. VAT

According to the established line of interpretation, transfer pricing adjustment is neutral under the Value Added Tax Act. Any adjustment to the agreed level of profitability (both up and down) resulting from the agreed transfer pricing policy does not constitute a taxable event for VAT purposes, as long as it does not affect the scope of taxation of goods or services sold to a related entity. This means that if the adjustment affects the entity’s overall profitability (profitability adjustment), and not the prices of different goods or services, i.e. it does not entail an adjustment of the original price of supplies, it does not constitute remuneration for a VAT-taxable transaction. The DKIS confirms that there are no grounds for documenting this type of transaction with an invoice (including an adjustment invoice). As a result, the profitability adjustment should be documented using accounting records other than the invoice, e.g. accounting notes. This position has been presented in the following DKIS advance tax rulings:

Verrechnungspreiskorrektur vs. CIT-8 und TPR

What should be remembered is that the transfer pricing adjustment must be reported:


The option of transfer pricing adjustment is surely a good solution for taxpayers, despite the many limitations it involves. In spite of being regulated directly, the preconditions for transfer pricing adjustment pose many questions in practice (most of all, on the classification of adjustment as transfer pricing adjustment and the method of adjustment recognition for VAT purposes). This is evidenced by numerous advance tax rulings that have been issued on this subject. What is more, in line with the rationale to the amendment referred to earlier here, the introduced conditions curb the abuse of transfer pricing adjustment by taxpayers and secure the interests of the Treasury. Bearing this in mind, taxpayers who go for the solution of transfer pricing adjustment should ensure their adjustments are properly documented and justified.

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