The Director of National Tax Information issued an interpretation in which he indicated how the company could exercise the right to exempt from the obligation to draw up local transfer pricing documentation on the basis of Article 11n(1) CIT legislation in the above mentioned areas Article 11l(3) This bill.
The applicant is a company belonging to the capital group X which deals with scrap turnover. During the financial year 2019 The company included controlled transactions with 25 entities associated with Group X, whose headquarters are in the territory of the Republic of Poland.
None of the related parties that provided the information benefited from the exemptions referred to in Article 6 CIT Act or Article 17(1)(34)(34a) The CIT Act, and the majority of its affiliated counterparties achieved in 2019 tax revenue, and only a few of them recorded a tax loss. At the same time the Company itself in 2019 also did not benefit from the exemptions referred to in Article 6 CIT Act or Article 17(1)(34)(34a) CIT Act and achieved tax income.
The interpretation concerns the situation where the company in 2019 has carried out a homogeneous controlled transaction involving the sale of scrap of color metals to 3 related entities i.e.
- related entity No 1, which fulfilled all the conditions referred to in Article 11n(1) CIT Act (value of transaction with this entity - approx. 800,000 PLN net),
- related entity No 2, which fulfilled all the conditions referred to in Article 11n(1) CIT Act (value of transaction with this entity - approx. 51,000,000 PLN net),
- related entity No 3, which did not meet all the conditions referred to in Article 11n(1) The CIT Act because it suffered a tax loss in 2019 (value of transaction with this entity - approx. 7,400,000 PLN net).
The total value of those controlled transactions of a homogeneous nature was 59,200,000 PLN net and thus exceeded the statutory threshold for commodity transactions of 10,000,000 However, this total value takes into account transactions with all three contractors.
After excluding the sum of transactions with exempted entities, the residual value shall not exceed the documentation thresholds referred to in Article 11k(2) CIT Act. Therefore, for such transactions controlled by the company, there is no obligation to draw up local transfer pricing documentation.
The fundamental interpretation doubt which arose on the part of the company is to determine whether, in relation to controlled transactions of a homogeneous nature, several controlled transactions carried out with several different related entities, the company has the right to benefit from a document exemption from Article 11n(1) The CIT Act, where some of the related parties (i.e.
counterparties of a controlled transaction) have fulfilled the conditions referred to in the above-mentioned provision (the so-called exempted group) and some have not fulfilled (the so-called non-exempt group).
The value of the counter-trading transaction of a homogeneous nature determined only for the non-exempt group did not exceed the documentation thresholds referred to in Article 11k(2) CIT Act.
In the light of the legal situation in force, the applicant’s view that the company has the right to benefit from the exemption from the obligation to draw up local transfer pricing documents was considered correct in the facts presented.
With regard to the concerns raised by the applicant, attention should be paid to the content Article 11l(3) updop, according to which determining the value of the controlled transactions of a homogeneous nature referred to in section 1, the value of controlled transactions referred to in Article 11n, which means that the value of the transaction (and documentation thresholds) should be determined only for that part of the transaction which is not exempt.
It should be noted that Article 11n(1) the update, containing the conditions for exemption from the obligation to draw up local transfer pricing documentation, the legislator, as a necessary condition, indicated, among others, that there was no tax loss. It follows from the wording of that provision that the obligation to draw up local transfer pricing documentation does not apply to controlled transactions concluded by national entities which, inter alia, have not suffered a tax loss.
Therefore, where a transaction controlled only with one of the national related entities does not meet the conditions listed in Article 11n(1) point c updop, the obligation to draw up a local transfer pricing documentation will apply only to this transaction concluded by the applicant with that related entity.
Thus, in the case of a controlled transaction of a uniform nature, the value of which exceeds the total value of the related entities of the company 10,000,000 PLN, but at the same time after excluding the entities referred to in Article 11n(1) Updop, it won't cross 10,000,000 PLN, the company for such transactions will not be required to draw up local transfer pricing documentation for 2019
This interpretation gives valuable guidance to taxpayers who engage in transactions with a number of related parties, while having some difficulty in determining whether they can and how they can exercise the right to exempt from the obligation to draw up local transfer pricing documentation. Every case of multilateral transactions needs to be carefully analysed, but as the developing practice confirms, there are many situations where documentation will not be necessary.
Author: Leszek Dutkiewicz, partner Russell Bedford Poland. Associated with the company from 2011. Director of RBP office in Katowice. 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.