Ministry of Finance published first recommendations of the Transfer Pricing Forum. Recommendations concern two aspects with which taxpayers may find it difficult to prepare tax documentation for their transactions, recommendations two first the working groups are concerned with the preparation of comparative analyses and conformity descriptions. Recommendations 1 the working group deals with technical aspects of the preparation of comparative studies.
The conclusions presented in the report concern in particular the data and the way in which the taxpayer drawing up the comparative analysis can benefit.
The recommendation shows, among other things, how to understand the statutory criterion of the locality of data (which raises legitimate doubts for taxpayers about the statutory provision, according to which the analysis of comparative data should contain comparable data on entities established or managed in the territory of the Republic of Poland, if data are available to the taxpayer).
With regard to this criterion, it was clarified that taxpayers should first the order is guided by the factors of comparability and whether or not the ultimately identified data will be of a local, regional, global or other nature should be a derivative of these factors and the availability of data.
According to the recommendation, the lack of local observations in the accepted sample cannot constitute a grounds for contesting the comparative analysis, provided the statutory comparability criteria are met.
The publication also contains comments on the use of internal data indicating the use of which source of information is beneficial for both the taxpayer (time and costs) and the tax authorities' preferred (potentially high degree of comparability). Their use requires strict criteria of comparability and, therefore, when deciding to use internal data, the taxpayer should ensure that such criteria of comparability for internal data used are adequately documented.
However, the comment on the use of the tender data indicated that, in principle, the tender data should provide information to describe the conformity of the terms of the transaction, and only a few tender data (e.g. from the stock exchange) after meeting the criteria of comparability, could potentially be useful for carrying out a comparative analysis using a comparable uncontrolled price.
It was pointed out that no provision of the Polish law or OECD documents or JTPF documents contained provisions that would prohibit the use of bid data in the process of analysing market terms of transactions.
From the other comments made in this publication, it is worth noting also those concerning the use/ rejection of extremes from the sample of comparative data.
In practice, when drawing up comparative analyses, especially in the case of data relating to the whole entities, taxpayers collect data from those who have achieved a loss during the selection of the sample, there has been frequent doubts in practice as to whether such data can be used.
The recommendation in this respect indicates that the negative financial result of the entity should not be the sole basis for its elimination during the selection of the sample.
The need to exclude data relating to such an entity may arise, if it is justified by the fact that that entity does not fulfil one (one or many) from the comparability criteria adopted during the analysis.
It was also pointed out that the possibility of using statistical measurements should be designed to eliminate the effects of extreme values on the final range which the analysis establishes as a range of market values.
The remaining comments mostly confirm the observations that are known today on the basis of existing legislation and established practice:
- • it has been confirmed that tax authorities should not use data from sources not available to the public (no secret comparables);
- • it has been confirmed that there is no guidance on the recommended or minimum sample size;
- • as regards the selection of the point from the range, it was pointed out that, in principle, each point in the range where the data meeting the comparability criteria are present is a market price information;
- • it confirmed the need for a cyclical review of the actual course of transactions in order to update the benchmarking analysis where the taxpayer finds significant differences on the basis of individually accepted comparability criteria.
Publication 2 the working group is concerned with drawing up descriptions of the conformity of the terms of the transaction and other events established with entities related to the terms which would be determined among themselves by independent entities. The publication includes comments that may give a hint on how taxpayers can handle the preparation of a description of compliance:
- it was pointed out that when drawing up a description of the conformity, the taxpayer should explain why it was not possible to prepare a benchmarking analysis (it is not mandatory to ‘eliminate’ all acceptable pricing methods) then indicate which data it has used (internal information on practice, industry knowledge, professional standards, etc.), justify the choice of such data and ultimately provide the results of its analysis;
- a description of the conformity may be any development or indication by which the taxable person is likely to have applied market conditions in the controlled transaction;
- the description may take any form – verbal description, graphic description, diagram, tabular list, or a total of several such forms;
- a description of compliance may include valuations of independent experts, publicly available market/branch analyses, commonly used in the industry of market quotations, price offers, data internally available to the taxpayer (contracts with counterparties, internal policies and others), investment/product/cost analyses, reference to the overall economic situation or to OECD Guidelines and JTPF work.
As far as the above comments/recommendations are concerned, taxpayers may still have the impression that there are no clear indications in many aspects, but the above indications may be considered as a recommendation that taxpayers should not be afraid to use any data available internally or externally to analyse or confirm the market character of transactions with related parties. Given the nature of the transfer pricing subject matter, the formulation of all types of general recommendations will always contain a reservation that in any case the individual specific conditions and circumstances of a particular transaction should be invoked.
Link to publication: ’
https://www.mf.gov.pl/ministerstwo-finansow/wiadomosci/aktualnosci/ministerstwo-finansow2/-/asset_publisher/M1vU/content/publikujemy-pierwsze-rekomendacje-forum-cen-transferowych?redirect=https%3A%2F%2Fwww.mf.gov.pl%2Fministerstwo-finansow%3Fp_p_id%3D101_INSTANCE_NsX0%26p_p_lifecycle%3D0%26p_p_state%3Dnormal%26p_p_mode%3Dview%26p_p_col_id%3D_118_INSTANCE_9Jwz__column-1%26p_p_col_count%3D1#p_p_id_101_INSTANCE_M1vU_
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.