The MF submitted for consultation a draft tax clarification on the price method of resale as one of the methods of estimating transfer prices. The consultation is due to take place by the end of April and will probably raise the interest of those working on tax documentation and analysis.
The target explanations will apply to controlled transactions carried out after 31 December 2018
In addition to general explanations, the proposed content of the explanations is intended to provide guidance on when to use the sales price method (hereinafter: MCO), how to determine the margin, how to choose the profitability rate, how to examine comparability.
MCO shall be used in particular where:
- the method of comparable uncontrolled price cannot be used,
- the subject of the controlled transaction has been sold to an unrelated entity in a short period of time,
- the subject matter of the uncontrolled transaction (resales transaction) has not changed significantly.
Choice of entity
MCO is primarily used in commodity trade between related parties, of which one is a producer and second a distributor.
Determination of the resale margin and calculation of the purchase price
In the calculation of the gross margin (price margin on sales), direct and indirect costs related to the sale of the subject-matter of the controlled transaction do not include any general management costs or the value of the goods or services sold. For the purposes of calculating the gross margin, sales costs shall not be excluded. Sales costs are, for example, the cost of wages for traders, the cost of transporting goods
The MCO should first be used to determine the selling price to an unrelated party. This amount should then be deducted from the margin of the resale price, which reflects the resale costs and profit for the entity. The price obtained in this calculation is the purchase price of the related party (controlled transaction).
The comparison of the margin of resale shall be made using internal or external data.
Choice of profitability ratio
In MCO, it is permissible to test the profitability indicators calculated for the entire activity of the entity, in particular when it operates a homogeneous activity or operates several activities, while one is a leading activity. However, it is not appropriate to apply a comparison across all activities where an entity engages in various controlled transactions.
Comparability
For example, the functional profile of transaction parties, the functions performed and the location of functions at different levels of trading, the way the entity operates, other conditions that may affect comparability (e.g. business strategy, impact of the group's pricing policy on applicable prices, contractual conditions) may be important in the context of the treatment of differences between compared transactions.
The above catalogue is exemplary and open and the use of specific factors in a particular case depends on the facts and circumstances.
The functional profile of entities involved in a specific controlled transaction includes in particular the functions performed, the risks incurred and the assets involved.
Where there are significant differences between controlled and uncontrolled transactions, these differences should be eliminated by adjusting comparability. No adjustments should be made to the comparability criteria which do not affect the transfer price or are negligible.
At present, there are no rules to determine the minimum or recommended comparative sample size in the analysis of comparative data.
[1] https://www.podatki.gov.pl/ceny-transferowe/wyjasnienia/konsultacje-podatkowe-w-sprawie-projektu-objasnien-podatkowych-w-zakresie-cen-transferowych-nr-6-metoda-ceny-odprzedazy/
Written by Leszek Dutkiewicz, partner of 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.