The Minister of Finance replied to Mr Kukiz's appeal`15 Bartosz Jóżwiak, regarding the transaction between the unit and its foreign establishment. The MF interpelling asked whether, when documenting transactions between an entity and its establishment, it was necessary to focus on the economic rationality of transfers made, or whether the use of margins would be mandatory.
In its reply, the MF indicated that the CIT Act and the relevant double taxation agreements contain provisions that allow an appropriate share of income to be attributed to a foreign establishment.
In order for such assignment to be possible, a certain legal fiction is used, which involves treating an establishment as separate from the entity's home unit. According to the MF, such a solution is a widely accepted practice of creating solutions under international tax law.
On the basis of Polish regulations (Article 11(8d) (updop) a foreign establishment shall be treated as a related entity to its parent unit and consequently shall be subject to tax documentation obligations, simplified report obligations and the possibility for tax authorities to estimate the amount of income assigned to that undertaking.
The MF stresses that no specific exemptions to documentation obligations have been introduced for foreign establishments.
This means that the current documentation thresholds (as appropriate) 2,000,000 EUR for the basic documentation obligation, 10,000,000 EUR for the obligation to draw up a benchmarking analysis) should be determined for the revenue and costs assigned to that undertaking.
However, the reply to the interpellations did not address the question of how the value of transactions between the undertaking and its parent unit should be determined.
The Minister of Finance’s reply to the parliamentary interpelling on 14 November 20198 R., DCT1.054.2.2018
Author
Leszek Dutkiewicz
Partner at Russell Bedford. From 2011 related to Russell Bedford Poland. In years 2008 – 2011 worked for leading consulting companies (Ernst&Young, KPMG, BDO) providing tax advisory services. He specializes in tax and economic law, primarily in international tax law, tax proceedings, VAT and transaction prices.
Author of a publication on tax, civil and international law issues. Lecturer in tax law training. He has legal education, in 2008 graduated from the Faculty of Law and Administration of the Jagiellonian University.