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One way to avoid or minimize the penalties that are imposed by tax bodies is to follow the arm’s length principle and prepare accurate documentation for transfer pricing.
Year by year the effectiveness of tax inspections increases in relation to transactions made between related entities. New reporting tools that support analytical activities of tax bodies make it possible to much more quickly and efficiently select those entities for inspection that are very likely to commit mistakes in the area of transfer pricing.
Tomasz Beger, Tax Partner
The scope of the services we offer covers assistance in both developing a transfer pricing policy and preparing tax documents as well as fulfilling the reporting duties. We prepare local files, benchmark analyses, compliance analyses as well as master files. We provide tax documentation so that they are optimum and safe in terms of business and taxes.
Adverse consequences of disclosing any incorrectness in this area may be disastrous to a taxpayer. The tax bodies have the right to independently assess the amount of tax revenues (or costs) when the prices applied to trade with related entities do not correspond to the market prices and, thus, the income is “transferred” in full or in part to other countries or entities.
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Transfer pricing documentation
The consistent development of the Polish economy, which has been noted for many years, and, above all, an increasing number of companies that belong to capital groups, account for the fact that transfer pricing is not merely a theoretical question, but instead it is a factor that should be taken into consideration each day when transactions are made with related entities.
The changing regulations about transfer pricing come to taxpayers as a challenge, since they must correctly verify the requirement of documentation. Taxpayers may find it extremely difficult to describe all the components in the local and master files as required by the laws. This is especially true, given the fact that the scope of the local file and the master file as prescribed by the regulations applying from 2017 was much more detailed than OECD guidelines in this respect.
This section presents how to determine the requirement of documentation and the scope of such requirement in accordance with the regulations that apply from 2017 and from 2019.
Due to the fact that the regulations about transfer pricing change very often, determining whether the requirement of documentation exists in the given circumstances can cause severe difficulties. For your convenience, we present diagrams to you that will, as we hope, make this process less complicated. One of the diagrams applies to the determining of the requirement of documentation based on the regulations that entered into force on 1 January 2017 and the other based on the regulations that entered into force on 1 January 2019.
Additionally, in relation to the tax year 2018, the taxpayers are allowed to choose the tax system they want to apply to the said year.
ESTABLISHING THE REQUIREMENT OF DOCUMENTATION FROM 01.01.2019
ESTABLISHING THE REQUIREMENT OF DOCUMENTATION FROM 01.01.2017
From 2019 the requirement of documentation does not depend on the amount of achieved revenues or incurred costs. The level of documentation thresholds has been set at PLN 10 million for goods transactions and financial transactions and at PLN 2 million for services and other transactions. A benchmark analysis or compliance analysis has become an obligatory component of each local file.
* Regulations in force from 1 January 2019 can also be applied to transactions made in 2018.
** The deadlines shown by the table apply to the preparation of the local documentation (local file) and the group documentation (master file), since the deadline for the submission of these files has not changed and is still 7 days from the delivery of the request for submission. The deadlines shown by the table apply to the submission of the statement and information about transfer pricing.
*** The threshold expressed in the table in PLN applies to capital groups preparing consolidated financial statements in PLN. The threshold expressed in EUR applies to capital groups preparing consolidated financial statements in a currency other than PLN. Regulations on the threshold amount expressed in PLN (PLN 3.25 billion) are applicable to the financial year beginning no earlier than on 1 January 2018.
Till the end of 2018 the scope of documentation depended not on the amount of a transaction, but on the level of accounting revenues or costs. More details are presented by the table below.
* The deadlines shown by the table apply to the preparation of the local documentation (local file) and the group documentation (master file), since the deadline for the submission of these files has not changed and it still is 7 days from the delivery of request for submission. The deadlines shown by the table apply to the submission of the statement and information about transfer pricing.
**The threshold expressed in the table in PLN applies to capital groups preparing consolidated financial statements in PLN. The threshold expressed in EUR applies to capital groups preparing consolidated financial statements in a currency other than PLN. Regulations on the threshold amount expressed in PLN (PLN 3.25 billion) are applicable to the financial year beginning no earlier than on 1 January 2018.