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Transactions with related entities are an integral part of today's business activities of a fair number of enterprises. However, its proper documentation, in particular within the scope of transfer pricing, is a complex process and requires not only thorough knowledge of legal regulations, but also a precise analysis of financial data. The changing approach of the authorities and the need to keep abreast of the market conditions make this task a challenge even for experienced teams. Therefore, the support of professional advisors is often crucial in preparing a local file.
Why choose RSM Poland's advisors for the preparation of a transfer pricing local file?
Preparing transfer pricing documentation is a complex and time-consuming process, and the lack of an adequate local file may carry severe financial penalties or – worse still – may be a contributing factor in the tax authorities challenging the arm's length nature of transactions with related entities, in turn leading to the imposition of additional tax liabilities and lengthy tax litigation. The good news is that the experts at RSM Poland can release you from the burden of analysing transfer pricing documentary obligations on your own, reducing the risk of errors and non-compliance.
Our specialists provide advisory services at every stage of local file preparation or create complete and adequate documentation from the ground up. Our support in compliance with the obligations required by Polish tax law consists of the following:
- Taking care that the time limits and rules of Polish law are observed – the absence of a local file or its inadequate preparation may result in severe financial penalties (theoretically even reaching as high as millions of Polish zlotys). Our transfer pricing team takes care that the necessary documents are prepared in a timely and reliable manner, protecting related entities operating in Poland from the risk of non-compliance found by the tax authorities during audits.
- Reviewing and approving transaction terms – taking advantage of our considerable experience and utilising the right tools, we analyse the data on transactions with related entities, minimising the risk of the tax authorities challenging the arm's length nature of the transactions.
- Preparing complete documentation – thanks to thorough knowledge of the Polish regulations concerning tax documentation, we are able to support internal teams in preparing a local file or to create it from the ground up, as needed, in compliance with local requirements.
Our support in compliance with the obligation to prepare a local file step by step
1. Analysis of the obligation to prepare documentation
First, we analyse the transactions carried out between related entities and verify the scope within which the entity is subject to the obligation to prepare a local file.
2. Data collection and transaction analysis
Then, we gather all the information necessary for the reporting of the transactions with related entities and carefully analyse their nature, terms, and functions performed by the parties to the transactions.
3. Functional and comparability analysis of the terms of the transactions with related entities
As the next necessary step to prepare the local file, we conduct a detailed analysis of functions, risks, and assets (the FAR analysis) to substantiate the arm's length nature of the prices set by related entities. By means of comparable data, we also perform a detailed and independent comparability analysis, which is essential in defending the adopted position of settling the transactions with related entities before the Polish tax authorities.
4. Preparing adequate tax documentation
After collecting all the necessary information (and making sure that the data is correct and accurate), RSM Poland's transfer pricing team prepares the final local file document. The created file contains all mandatory elements – from the description of the entity to the financial data.
Frequently asked questions: What should you know about the local file in transfer pricing?
A local file is local transfer pricing documentation which must be prepared by taxpayers concluding transactions with related entities. Its purpose is to demonstrate that these transactions are in line with the arm's length principle, i.e. they are on the same terms that would have been agreed upon by independent enterprises.
The lack of a local file or failure to prepare it within the set time limit or in an adequate manner may result in heavy financial penalties, which may amount to as much as millions of Polish zlotys. In addition to that, adequate transfer pricing documentation minimises the risk of the tax authorities challenging the transaction prices and adjusting the taxable income together with interest.
The obligation to prepare a local file applies to entities whose values of transactions exceed statutory thresholds in a given tax year.
The local file documentary thresholds are PLN 10 million for commodity and financial transactions and PLN 2 million for service and other transactions.
Transfer pricing audits are among the most meticulous and lengthy tax audits. They may last from several months up to more than a year, depending on the circumstances. Complete and adequate documentation and the support of an experienced team of experts may facilitate and reduce this process to a great extent.
The finance teams of entities with the obligation to prepare transfer pricing documentation must be aware of many details
Adequate tax documentation is necessary to avoid heavy penalties or disputes with the tax authorities. So, if your Polish business enters into transactions with related entities, contact us to take advantage of professional support in preparing local file documentation.
RSM Poland's experts have extensive experience in providing services to both local and multinational groups and enterprises. We offer comprehensive support in two languages – Polish and English – and cooperate with international experts belonging to the global RSM network. Owing to this, our clients can be certain that their documentation will be always provided on time and prepared in compliance with applicable regulations and standards. Feel free to contact us!
