Undoubtedly, the joyous news is that some time ago the deadlines for submitting transfer pricing information (i.e. TPR-C and TPR-P forms) and the local tax documentation were extended.
According to Act dated 8 June 2022 amending certain laws to automate the handling of certain cases by the National Tax Administration[1], the time limits are extended as follows:
- up to day 30 September 2022, if the time limit expires from the date 1 January 2022 up to day 30 June 2022,
- o 3 months if the time limit expires from the date 1 July 2022 up to day 31 December 2022
This means that, for example, companies for which the deadline for drawing up and submitting the above documents would expire 30 September 2022, may draw up tax documents, a TPR-C form and a statement of tax documentation to 31 December 2022 This is undoubtedly to facilitate the implementation of the documentation obligations for taxpayers, established by the last two pandemic years Covid-19.
If you enter into related party transactions, Russell Bedford Poland Sp. z o.o. is able to help in fulfilling these obligations.
Despite this convenience, the deadlines are coming inexorably. Therefore, if the scope of the documentation obligation has already been examined, it is worth reading the mandatory scope of the tax transfer pricing documentation.
According to Article 11 q section 1 Corporate Income Tax Act[2], the tax documentation of transfer prices should contain the following elements:
- 1) a description of the related entity;
- 2) a description of the transaction, including analysis of functions, risks and assets;
3) the analysis of transfer prices, including:
(a) an 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", or
(b) an analysis demonstrating the conformity of the conditions under which the controlled transaction was concluded with the conditions which would be determined by unrelated parties, hereinafter referred to as the "compliance analysis", where it is not appropriate to draw up a benchmarking analysis in the light of the transfer pricing method concerned or is not possible with due care;
- financial information.
For more detailed information on the above elements, see the Regulation of the Minister of Finance dated 21 December 2018 on corporate tax transfer pricing documentation (Journal of Laws of 2018, item 2479, hereinafter referred to as: Transfer Price Documentation Regulation or Regulation). According to the Regulation, the description of the related party should contain:
(a) a description of the management structure and organisational structure of the related entity,
(b) a description of the underlying activities of the related entity, including:
- an indication of the activities carried out,
- an indication of the geographic markets on which the related entity operates,
- a description of the industry and market environment in which the related entity operates, indicating the impact of economic and regulatory conditions and identifying key competitors,
- a description of the economic strategy,
- 2 information on economically significant functions, assets or risks affecting a related entity that were transferred in the tax year and the year before that year, if any,
(c) in the case of a controlled transaction in question under Article 11q(3a)(1) Act[3], information on the status of the micro-entrepreneur or small business by indicating whether the related entity in the last tax year has fulfilled the conditions set out, respectively, under Article 7(1)(1) either 2 Act dated 6 March 2018 - Business law (Journal of Laws of 2021, items 162, 2105; of 2022, item 24);
„first the transfer pricing documentation element is descriptive. It is intended to provide detailed information on the taxable person drawing up the dossier. This part of the documentation shall describe only the body drawing up the documentation. A description of the related party to the transaction shall be presented as follows:’[4].
At the same time, it should be noted that the description of the management structure should not be limited to information about the members of the management board or other persons representing the entity concerned; it must also refer to the competence of the persons concerned as to how the management decisions are taken.
In addition to the description, an organisational scheme must be included in the documentation: ‘the legislature requires that in a graphic form it should show how the taxpayer’s company is organised.
The scheme should therefore indicate all decision-making levels and individual departments of the company with an indication of their competence in such a way as to distinguish them from other organisational cells."[5].
In turn, the description of the core activity should be as detailed as possible – especially when this activity is related to the transaction. The use of the term ‘including’ indicates that these elements of the description are in no case a closed catalogue and may be supplemented by additional information for the widest possible presentation of the entity’s activities.
According to section 2 point 2 Transfer pricing documentation regulations, the transaction description should include:
(a) the subject matter and type of controlled transaction,
(b) information on the related entities involved in the controlled transaction, including:
- the name and seat of the Management Board,
- the tax identification number and, in the absence thereof, another identification number, together with the identification of its type and the indication of the country or territory of its issue,
- identification of the main activity,
- the nature of the links between these entities,
(c) functional analysis of related entities involved in the controlled transaction, taking into account significant changes compared to the previous tax year, describing:
- functions performed,
- risks incurred, including their ability to bear them,
- the assets involved,
- (d) the method of calculating the transfer price, together with the assumptions adopted,
- (e) the value of the controlled transaction... broken down by counterparty;
- (f) payments received or transferred in connection with the controlled transaction, including deductions of mutual claims made,
- (g) agreements, intragroup agreements or other documents relating to a controlled transaction,
- (h) tax agreements or interpretations relating to a controlled transaction, including transfer pricing arrangements, concluded with or issued by tax administrations of countries other than the Republic of Poland;
Given the above number of individual elements of the description, the transaction between related parties should be presented as comprehensively as possible, starting with the type of transaction and the entity information with which it was dealt, by analysing the functions performed in the transaction by the individual entities, ending with financial elements such as pricing and payment arrangements.
For the reasons set out above, apart from the issues and individual components of the benchmarking analysis (which is the subject of a separate article), financial information is the last element of the tax documentation. The tax documentation should contain the approved financial statements for the financial year drawn up on the basis of the accounting rules and a description allowing the financial data relating to the audited transaction to be assigned to or to other information contained therein.
As could be seen from the above article, drawing up tax records is not necessarily an easy process. In particular, if the transaction between related parties is complicated, the issue of its overall inclusion in the documentation and the presentation of the necessary market-level documents may be burdensome for taxpayers.
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,
- the preparation of comparative analyses and other studies aimed at the overall fulfilment of the documentation obligation.
If you enter into related party transactions, Russell Bedford Poland Sp. z o.o. is able to help in fulfilling these obligations.
Feel free to contact us.
[1] Journal of Laws of 2022, item 1301.
[2] Act dated 15 February 1992, corporate income tax, Journal of Laws of 2021, item 1800, as amended
[3] Exemption from benchmarking is currently possible in two cases, i.e.: 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 dated 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 with a so-called tax paradise or if the counterparty's owner is resident in a tax paradise. It should be noted that fate Article 11o(1a) the development of this Article is uncertain (i.e. may be deleted from the Corporate Income Tax Act).
[4] A. Rynowska, T. Kosieradzki, R. Baker, Transfer Prices 2019. Mechanisms, documentation, reporting, Wolters Kluwer S.A. Publishing House, Warsaw 2019, p. 443.
[5] Ibid. p. 443.
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 is associated with the law firm 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.