Check what comparative analysis is and how we can help create documentation

Different reference analysis is defined: ‘comparative study’, ‘comparability study’, ‘benchmarking study/benchmarking analysis’ or simply ‘benchmark’. It was once overlooked (probably because it was not a mandatory element of tax documentation), but it is now extremely important as one of the mandatory elements of the transfer pricing tax documentation and the basis for confirming the market price level used in the transaction under consideration.

For some time comparative analysis was an element of the tax documentation of transfer prices very underestimated. Suffice to mention that to 2013 Polish legislation did not even contain regulations on the methodology of drawing it up.

If you enter into transactions with related parties, Russell Bedford Poland Sp. z o.o. is able to help you fulfil these obligations. Feel free to contact us.

This only changed the Regulation of the Minister of Finance on 17 June 2013 amending the Regulation on how and how to determine corporate income by estimation and how and how to eliminate double corporate taxation in the event of adjustment of profits of related entities[1] (hereinafter referred to as: the Regulation amending the Regulation from 2009)[2]. The definition of the analysis is as follows in the above legislation:

Determination of the income of an associated entity by estimation precedes the tax authorities and tax authorities carrying out an analysis of the conditions laid down between the related entities and examining the compatibility of those conditions with those which would have been determined by independent entities, or the conditions which would have been determined by the relevant entity with the independent entity in comparable circumstances of the case, hereinafter referred to as ‘a comparability analysis’[3]

In addition, in accordance with the provisions applicable to 2016 In addition, the comparative analysis (or ‘comparability analysis’) was not a required element of the transfer pricing tax documentation.

The situation has changed in 2017, when amendments to the Act of 15 February 1992 on corporate income tax (Journal of Laws of 1992, item 86, hereinafter referred to as: Corporate Income Tax Act). Since then, analysis has been listed as one of the elements of tax documentation (and although mandatory this time, it is only subject to certain conditions). According to Article 9a(2b)(2) Corporate Income Tax Act[4]:

The tax records shall include: (...) in the case of taxable persons: (a) whose revenue or costs, within the meaning of the accounting rules established on the basis of the accounts kept, exceeded the equivalent in the year preceding the tax year 10,000,000 EUR or (b) having an interest in a company which is not a legal person whose income or costs, within the meaning of its accounting rules, as established on the basis of the accounts, exceeded in the previous financial year within the meaning of those provisions the equivalent 10,000,000 EUR – in addition to the description referred to in point 1[5], also a description of the analysis of the data of independent entities or the data established with an independent entity, considered comparable to those of transactions or other events referred to in section 1, hereinafter referred to as ‘the analysis of the comparative data’ used for the calculation of the accounts in question point 1 point (e)[6], together with the source of these data.

If the taxpayer fulfilled the conditions set out above, he was obliged to attach to the tax records the transfer pricing of the benchmarking data.

By simplifying this definition, the analysis is a description of the data on the terms of the transactions concluded with an independent entity or concluded between independent entities comparable to the terms of the transactions established between the taxpayer and the associated entity.

On the other hand, the above analysis is intended to prove that the price set between the related parties has been set at market level.

As of January 2019 regulation, benchmarking is also an integral part of the transfer pricing tax documentation. However, this time it does not require additional conditions. According to Article 11q(1)(3) point (a)[7]:

The local transfer pricing documentation shall contain the following elements: (...) 3) the analysis of transfer prices, including: (a) the analysis of the data of unrelated parties or transactions concluded with unrelated parties or between unrelated parties considered comparable to those established in controlled transactions, hereinafter referred to as ‘comparative analysis’ ....

Looking at the above definitions in the legislation over the years and comparing them, it can be concluded that they did not undergo drastic changes in the purpose of the analysis itself. Only the approach to the obligation to draw it up made it possible to see that the legislator was increasingly aware of the importance of its purpose. This is to determine whether the price in the transactions between related parties was set at market level, i.e. one which would have been determined by independent entities.

In the above approach there was also a change, quite fresh, because introduced at the beginning 2022 It follows from the corporate income tax Act added to it Article 11q(3a). It allows for exemption from the obligation to draw up a comparative analysis in certain cases. These cases are:

1. where transactions between related parties are concluded by related entities which are a micro-entrepreneur or a small entrepreneur within the meaning of the relevant Article 7(1)(1)(2) Act of 6 March 2018 - Business law,
2. where transactions are not concluded between related parties, but the obligation to draw up tax records arises from Article 11o(1)(1a), i.e. it concerns a transaction with an entity in the so-called tax paradise or if the counterparty's owner is resident in the tax paradise[8].

This solution, which should be stressed, is not intended to diminish the relevance of the element of the transfer pricing tax documentation, which is a comparative analysis. It is introduced to facilitate the documentation obligation for micro and small entrepreneurs.

Russell Bedford Poland Sp. z o.o. has been advising customers on transfer prices for many years. It also provides services

examination of the documentation obligation,

preparation of tax records,

drawing up comparative analyses which may serve as an annex to the relevant documentation.

If you enter into transactions with related parties, Russell Bedford Poland Sp. z o.o. is able to help you fulfil these obligations. Feel free to contact us.

Written by Michał Zdanowski. Project manager.

Graduate of the Faculty of Law and Administration of the University of Warsaw, Graduate of the Postgraduate Tax and Tax Law Studies of the University of Warsaw, Graduate of the Postgraduate Accounting and Finance Studies of the Warsaw School of Economics. Since September 2013 He is associated with Russell Bedford Poland. Specializes in transfer pricing. Together with an experienced team, he supports leading companies in fulfilling tax obligations in terms of transfer prices.