Following earlier communications in late March 2019 The Ministry of Finance presented a draft law on the settlement of disputes concerning double taxation and the conclusion of prior price agreements.
According to the title of the bill and earlier announcements, the project aims to organise 2 issues:
• Double taxation dispute settlement
In this respect, the aim of the Act is to clarify and ensure transparency of the rules on dispute resolution that may arise on the basis of double taxation issues and which already exist under bilateral double taxation treaties and under a multilateral international agreement (the so-called Arbitration Convention).
• Transfer pricing agreements
With regard to this issue, the draft law provides for the transfer to the content of the new normative act of the existing regulations contained in Section IIA Tax Ordinance Transfer pricing agreements and complement existing rules with the possibility of simplified pricing agreements.
The shortening of the duration of the simplified pricing arrangements is therefore doubtless, although the way in which the provision is formulated leaves a margin, it was pointed out that the agreement should be issued without undue delay no later than within 3 months
It is worth stopping at the proposed content of the regulation on simplified price agreements.
From the moment first the taxpayer’s announcements have long awaited a concrete proposal for the possibility of a simplified price agreement, as the tool itself appears to be a useful instrument to reduce the risk of price fixing between related parties, while the existing procedure for obtaining a basic price agreement was so complicated, time-consuming and costly that the number of agreements concluded is relatively small.
This situation was to change diametrically after the introduction of simplified price agreements.
Simplified mode of price agreement – theory
The text of the explanatory memorandum to the project indicates that the project will implement most of the previously announced simplifications, which are to consist primarily of:
- • limiting the scope of the information required in the application;
- • enabling declarations to be made instead of a significant number of documents;
- • the introduction of a lower flat fee;
- • Introduction 3-the period of one month for the simplified APA procedure;
- the possibility of transferring the proposal made in the previous basic procedure to the new simplified procedure (as well as if the taxable person makes the request in a simplified procedure, but will not be able to complete it in this mode, the possibility of transferring the application from the simplified procedure to the standard procedure.
Simplified price agreement – implementation
What is the implementation of these assumptions in the light of the content of the proposed solutions based on the proposed provisions of the Act?
At the outset, the content can be disappointing Article 71(2)), according to which a simplified price agreement may be issued only for transactions concerning:
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- services with low added value;
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- to bear fees for the use or right to use a trade mark or knowledge/information constituting so-called know-how.
This is undoubtedly a very narrow subject matter, which can be the subject of a simplified price agreement on the extent to which taxpayers would expect.
Turning to Chapter Rules 3 The draft law, on simplified agreements, indicated that a simplified agreement would not be possible for transactions completed before the date of the application, as well as where the applicant's income share in revenues at least two tax years in the last period third tax years are lower than 1%.These limits are quite rational, with the requirement to maintain income participation at a level not lower than 1% should also concern first two the years for which the simplified agreement was issued.
As regards the procedure for obtaining a simplified price agreement, the changes are noticeable, the request for a simplified price agreement is to include:
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- information on the controlled transaction (primarily a brief description of the need for the transaction and an indication of the method of verification of the transfer price, together with its calculation to be provided in an editable electronic form);
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- statements of economic justification for a controlled transaction;
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- a description of the economic benefits resulting from the transaction;
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- a comparative analysis either of the conformity analysis or a statement that the applicant uses a low added value safe service;
- •
- a proposal for the duration of the simplified price agreement.
It was pointed out that a simplified price agreement could be issued for a period not exceeding 3 tax years, it can be renewed for another 3 years periods (multiple) provided that the elements of the simplified price agreement have not changed significantly.
The procedure for a simplified price agreement should be completed within the 3 months after its initiation, the flat-rate fee is to be 20,000 PLN.
The shortening of the duration is therefore doubtless, although the way in which the provision was formulated leaves a margin, it was pointed out that the agreement should be issued without undue delay no later than within 3 months.
Under Article 101 The draft law provides for the possibility of modifying the procedure for dealing with the standard prior price agreement to the simplified price procedure procedure. The finding of such possibility will lie with the tax authority, which should notify the applicant who will have it 3 months to make a decision.
In the context of the proposed draft on the possibility of obtaining a prior price agreement, it is interesting how taxpayers will assess this regulation as to:
- • the scope of transactions which may be covered by a simplified price agreement, or is it possible to identify other transactions which, for taxpayers, should be covered by the possibility of obtaining a simplified price agreement?
- • the extent of the information to be collected and made available in order to obtain a simplified price agreement – can this encourage such agreements?
- • the expected duration/cost/formal requirements – are they adequate to the benefits of a simplified price agreement?
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.