Government Legislative Centre 26 July 2021, published a draft law on income tax on individuals, corporate income tax and some other laws entering the package "Polish Deal”. To 30 August 2021 the public consultation on the solutions presented in the draft laws will continue.
Reform called "Polish Deal” creates a lot of emotions among taxpayers, it is supposed to be a tax reform containing historical and radical tax changes aimed, among others, at sealing the tax system, limiting the grey zone or equalising opportunities for companies operating on the Polish market.
This article presents the most important changes in transfer pricing. The draft amendment envisages changes to simplify and organise transfer pricing rules. However, new developments may also have a negative impact on taxpayers' obligations. The description of the following changes is based on the bill presented in the presentation of the package "Polish Deal”. The final wording of the law may be substantially amended during the legislative process.
Transfer pricing information (TPR) and transfer pricing documentation declaration
In the current state of the law, the TPR is signed by the head of the entity, which usually means members of the management of the entity. The changes proposed by the Ministry of Finance provide for the possibility of signing transfer pricing information by the attorney acting in accordance with the principles of representation, legal advisor, auditor, tax adviser or attorney.
As part of the changes made Polish Deal the transfer pricing information (TPR) is to contain a statement that the transfer pricing documentation will not be necessary to produce a separate document. Simplification will be that the taxpayer will only submit one document to a specific office instead of two separate offices two documents to two separate offices.
The draft law also provides for a change in the possibility of submitting transfer pricing information on the basis of local documentation where the entity was required to prepare local documentation on specific transactions. In addition to this particular case, transfer pricing information should be compiled by taxpayers on the basis of data and information derived from the accounts or separate documents.
The last of the proposed changes in some of the transfer pricing information (TPR) is the exemption of an entity obliged to produce transfer pricing information (TPR) from the obligation to draw up and provide information on contracts concluded with non-residents within the meaning of foreign exchange law.
Transaction value
The proposed amendment is to link the concept of the value of the controlled transaction with the neutrality of the tax on goods and services. For the purposes of documentation obligations, the value of controlled transactions will include a tax on goods and services.
The project shall attempt to remove interpretation doubts as to how to determine the value of the controlled transaction for insurance, reinsurance, deposit and non-legal person contracts. For each contract, the attempt to clarify the value of the transaction is as follows:
-transactions involving the conclusion of an agreement of a non-legal entity: the value of the transaction relates to the total value of the contributions to the company;
-insurance and reinsurance contracts:
the value of the transaction will be determined on the basis of the sum of the insurance;
-deposit agreements:
the value of the transaction will refer to the value of the capital.
Extension of time limits for drawing up documentation including submission of transfer prices at the request of the tax authority
Polish Deal is expected to extend the deadline to 14 days in case of a request for submission of documentation by the tax authority from the current 7 days.
Local transfer price documentation – extension of the deadline for drawing up one one month from the current legislation i.e. to the end tenth one month after the end of the tax year of the entity;
Transfer pricing information – extension of the deadline for submission by two months in relation to the current rules i.e. to the end eleventh the month following the end of the tax year of the entity.
Local transfer pricing documentation — no analysis obligation for certain transactions
For transactions other than controlled transactions which are subject to a documentation obligation with so-called tax havens or where the actual counterparty owner is resident in so-called tax havens - Polish Deal assumes exemption from carrying out transfer pricing analyses.
Documentary obligations – exemptions
Changes to come with Polish Deal a number of exemptions from the obligation to draw up local transfer pricing documentation should also be included. Under the relevant conditions, transactions involving, inter alia, a clean return, transactions covered by a tax agreement and an investment agreement and transactions covered by a safe will be excluded entirely from the documentation obligation.
Capital groups – group documentation
Polish Deal provides for increased documentation obligations. Under the proposed rules for all taxpayers belonging to capital groups whose financial statements have been consolidated in a proportionate or full manner, it will be mandatory to attach to the local transfer pricing documentation; group documentation. In the current rules, the requirement to attach group documentation was incumbent on taxpayers who belonged to groups exceeding the threshold 200,000,000 PLN consolidated revenue in the preceding year.
Criminal and Tax Code
Polish Deal implies changes in the rules related to transfer pricing obligations:
- the submission of TPR after the statutory deadline will be subject to fines to 240 daily rates,
- failure to submit transfer pricing information to the competent tax authority or to provide data incompatible with the actual local transfer pricing documentation will be subject to penalties until 720 daily rates, - failure to compile transfer pricing documentation or failure to incorporate group transfer pricing documentation into local transfer pricing documentation, contrary to its obligation, will be subject to fines until 720 daily rates.
The proposed changes in the majority appear to be beneficial especially for Polish related entities, but also for entities carrying out Paradise transactions rather than operating within capital groups. Changes to the provisions of the Criminal and Tax Code in the Ministry's assessment are a natural consequence of the liquidation of the transfer pricing documentation. It should be borne in mind that these changes are currently at the design stage