Over 60% of global trade is generated by
multinational enterprises that include both world’s
leading corporations, which have become household
names, and smaller companies that own one or
several affiliated enterprises in but a few countries.
The resulting globalization of business operations
has drawn the attention of tax authorities to the
issues of transfer pricing; transfer pricing arises in
the context of price relations between entities that
belong to the same group of companies. In
accordance with the Guidelines issued by OECD’s
Committee on Fiscal Affairs, transfer prices are
prices at which an enterprise provides goods and
intangibles or renders services to related enterprises.
Consequently, the term applies exclusively to
transactions concluded within a single group of
companies. The Polish tax law does not use the
concept of transfer price, which has been replaced
by the concept of transaction price (cena
transakcyjna). Pursuant to Article 3(10) of the Tax
Ordinance, transaction price means a price of a
transaction entered into between related entities
(podmioty powiązane) within the meaning of the
provisions of the tax law on personal income tax,
corporate income tax, and tax on goods and services
(VAT). This includes all types of transactions under
which tangible goods and intangibles are transferred
or provided for use, loans extended, and services
rendered. Tax authorities are particularly interested
in intercompany loan and guarantee (surety)
transactions and in cash pooling transactions.
Tax authorities are entitled to adjust the transaction
price adopted by entities that belong to the same
group of companies under conditions set forth in
Article 11 of the Act on Corporate Income Tax. If as
a result of connections between companies described
thereunder, conditions that differ from those that
independent entities would apply have been adopted
or imposed and because of that an entity does not
report income or reports lower income that should be
expected if it were not for the above connections
(and consequently pays lower tax), then the income
of the relevant entity and tax payable are established
without taking into account the conditions resulting from those connections. Simply put, tax authorities
may interfere in a situation when the prices of
specific transactions concluded between related
entities (engaging in a non-agricultural business
activity) do not correspond with the prices that
would be applied in similar transactions and under
similar circumstances in a free market by
independent entities. Importantly, the above right of
tax authorities (or tax inspection authorities) applies
also to transactions between related domestic
entities, the international aspect not being necessary.
The ability to evaluate adequately the conditions of a
transaction depends primarily on learning the
reasons why they are structured the way they are.
Taxpayers entering into transaction with related
entities are obligated to maintain the relevant
documentation in that regard, in compliance with the
guidelines set forth under Article 9a(1) of the Act on
Corporate Income Tax, providing that the aggregate
value (or its equivalent) arising under an agreement
or the aggregate amount actually paid during the tax
year for goods or services falling due during the tax
year is in excess of EUR 100,000, EUR 30,000, or
EUR 50,000, respectively, depending on the type of
entity and category of transaction. At the request of
tax authorities or tax inspection authorities taxpayers
are required to submit the above documentation
within a period of seven days of the date of request
service. Otherwise, if the documentation is not
submitted, the authority may conclude that the
transaction resulted in shifting income and charge
the taxpayer with a restrictive tax rate of 50%,
calculated on the difference between the income
reported by the taxpayer and established by the
authority (Article 19(4) of the Act on Corporate
Income Tax).
However, it is worthwhile for taxpayers to document
the conditions of transactions adopted by them even
if they are not covered by the statutory obligation.
Inspection authorities are obligated to accept and
take into account the data submitted by the taxpayer
if its reliability and objectivity raise no doubts.
Consequently, it would be harder to accuse entities
that have the relevant analyses at their disposal of the
prices applied in their transactions not being arm’s
length and as a result impose additional tax on them.
MILLER, CANFIELD,
W. BABICKI, A. CHEŁCHOWSKI I WSPÓLNICY SP.K.
ul. Batorego 28-32
81-366 Gdynia
Tel. +48 58 782-0050
Fax +48 58 782-0060
gdynia@pl.millercanfield.com
ul. Nowogrodzka 11
00-513 Warszawa
Tel. +48 22 447-4300
Fax +48 22 447-4301
warszawa@pl.millercanfield.com
ul. Skarbowców 23a
53-125 Wrocław
Tel. +48 71 780-3100
Fax +48 71 780-3101
wroclaw@pl.millercanfield.com
Disclaimer: This publication has been prepared for clients and professional associates of Miller Canfield. It is intended to provide only a summary
of certain recent legal developments of selected areas of law. For this reason the information contained in this publication should not form the
basis of any decision as to a particular course of action; nor should it be relied on as legal advice or regarded as a substitute for detailed advice in
individual cases. The services of a competent professional adviser should be obtained in each instance so that the applicability of the relevant
legislation or other legal development to the particular facts can be verified.