In the period from 2016 to 2019, the transfer pricing regulations were changed on three separate occasions, including with respect to the limits of transactions subject to documentary obligations.
Article 9a of the Corporate Income Tax Act (“CIT Act) in its wording binding until 31 December 2016, stated that the documentary obligation applied to transactions carried out by taxpayers with related entities (or transactions under which receivables resulting from the transaction were paid to an entity having a place of residence, a registered office or a management office in the territory of or in a country applying harmful tax competition),
whose total amount resulting from the contract or the total amount of benefits actually paid in the tax year exceeded the equivalent of:
1) EUR 100,000 – if the value of the transaction does not exceed 20% of the share capital, calculated in accordance with Article 16(7) of the CIT Act; or
2) EUR 30,000 – in the case of the provision of services, sale or provision of intangible assets; or
3) EUR 50,000 – in other cases.
In practice, only subparagraphs 2) and 3) have been applied for years, since Article 6(7) of the CIT Act
was repealed in 1997.
As of 1 January 2017 the new wording of Article 9a of the CIT Act has applied, giving rise to new limits, taking into account the taxpayer’s revenues. As such, the documentary obligation covered taxpayers whose revenues or costs exceeded the equivalent of EUR 2,000,000 in the year preceding the tax year, who, in the tax year, carried out transactions with related entities or recognized in the accounting books other events, the terms of which were agreed with related entities, having a significant impact on the amount of their income or loss.
Pursuant to the provisions that have been in force since 1 January 2017, transactions or other events of the same kind the total value of which exceeds the equivalent of EUR 50,000 in the tax year are considered transactions or other events that have a significant impact on the taxpayer’s income or loss, except that for taxpayers whose revenues in the year preceding the tax year exceeded the equivalent of:
1) EUR 2,000,000, but not more than the equivalent of EUR 20,000,000 – transactions or other events of the same kind, the value of which exceeds in the tax year an amount equivalent to EUR 50,000, increased by EUR 5,000 for each EUR 1,000,000 of revenues in excess of EUR 2,000,000, are considered such transactions or other events;
2) EUR 20,000,000, but not more than the equivalent of EUR 100,000,000 – transactions or other events of the same kind, the value of which exceeds in the tax year an amount equivalent to EUR 140,000, increased by EUR 45,000 for each EUR 10,000,000 of revenues in excess of EUR 20,000,000, are considered such transactions or other events;
3) EUR 100,000,000 – transactions or other events of the same kind, the value of which in the tax year exceeds the amount equivalent to EUR 500,000, are considered to be such transactions or other events.
As of 1 January 2019, Article 9a of the CIT Act was repealed and substituted by the entire Chapter 1a of the CIT Act concerning transfer prices. New provisions and definitions were introduced and both the limits of transactions subject to transfer pricing documentation and the scope of the documentation itself were changed again.
The amendments mean that related entities are required to prepare a local file of transfer pricing for the financial year in order to demonstrate that transfer prices have been agreed on such terms as would be agreed by unrelated entities. A local file of transfer pricing is to be prepared for each controlled transaction of a homogeneous nature, the value of which, less value added tax, exceeds the following documentary thresholds in the financial year, irrespective of the amount of revenue or loss:
1) PLN 10,000,000 – in the case of commodity transactions;
2) PLN 10,000,000 – in the case of financial transactions;
3) PLN 2,000,000 – in the case of service transactions;
4) PLN 2,000,000 – in the case of transactions other than those specified in subparagraphs 1 to 3.
The above thresholds shall be determined separately for each controlled transaction of a homogeneous nature, whether a controlled transaction is qualified as a commodity, financial, service or another transaction, and separately for the cost and revenue side.
In addition, according to the changes regarding the content of the transfer pricing documentation, a local file shall comprise:
- a description of the related entity;
- a description of the transaction, including analysis of functions, risks and assets;
- transfer pricing analysis, including:
- analysis of data of unrelated entities or transactions concluded with unrelated entities or between unrelated parties recognized as comparable to the terms agreed in controlled transactions, hereinafter referred to as “comparative analysis”; or
- analysis demonstrating compliance of the terms under which a controlled transaction was concluded with those that would be agreed by unrelated entities, hereinafter referred to as “compliance analysis” – where comparative analysis is not appropriate in the context of a given transfer pricing method or where it is reasonably impracticable;
- financial information.
In addition, related entities which are consolidated using the full or proportional method and which are required to prepare a local file of transfer pricing, shall attach a master file thereto if they belong to a group of related entities:
1) for which consolidated financial statements are prepared;
2) whose consolidated revenue exceeded PLN 200,000,000 or its equivalent in the previous financial year.
Under the new regulations, a master file shall comprise:
a) a description of this group;
b) a description of significant intangible assets of this group;
c) a description of significant financial transactions of this group;
d) financial and tax information of this group.