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New obligations within transfer pricing documentation

01-06-2015

Ministry of Finance intends to introduce changes to PIT and CIT Act concerning transfer pricing documentation. The amendments appear to be controversial and most likely will impose many additional obligations on the companies.

The most revolutionary change is an attempt to abolish current transfer pricing documentation thresholds (currently transfer pricing documentation thresholds refer to value of transaction i.e. kEUR 30, 50 or 100, depending on the nature of transaction). If the new regulations will come into force, the obligation of drawing up a relevant documentation will refer to size of the company rather than to value of transaction. Documentation requirements will apply to the companies whose annual revenue and/or expenses exceed EUR 2 MM and will concern each transaction with the related party regardless of the value of the transaction.

Moreover, the companies whose annual revenue and/or expenses exceed EUR 10 MM will be obliged to follow additional documentary requirements:

  • obligation to draw up comparative analyses in order to confirm the arm’s length character of transactions with related parties;
  • enclosing to the annual tax return a report on the transactions carried out by the taxpayer with the related-parties as well as the Management Board report on drawing up transfer pricing documentation.

The deadline for submitting such documentation remains the same, i.e. 7 days from receiving the notice from the tax office. New regulations specify also the deadline for drawing up the transfer pricing documentation – the companies will have the time to do that up to the day of submitting their annual tax return.

Although the intended amendments generally seem to increase the tax compliance burden, they still have some advantages. One of them is a change of a threshold after which the companies are deemed to be “related” for transfer pricing purposes. Current Polish legislation on that matter is very restrictive. Under the draft amendment, capital ties threshold will increase from 5% to 20%. An undisputed advantage is also a fact that the companies whose revenues or expenses do not exceed mEUR 2 per year will have no obligation to draw up transfer pricing documentation. New provisions on transfer pricing documentation will take effect from 1 January 2016 and will concern transactions and events taking place after that date.

Source: Rzeczpospolita, 5 May 2015, p. C4