Who is concerned by the exemption from the documentation obligation

Not all transactions between related parties are subject to documentation obligations, i.e. they require a transfer pricing tax documentation. Apart from the question of "documentary thresholds"[1], legislator introduced from 2019 additional conditions under which the transaction is exempted from the documentation obligation.

These conditions are described accordingly in Article 11n corporate income tax laws and Article 23z Personal Income Tax Act. According to the above provisions, the documentation obligation does not apply to the transactions described below.

After first, are transactions carried out exclusively by affiliated entities domiciled, established or managed in the territory of the Republic of Poland in the tax year in which each of those affiliated entities meets the following conditions:

• does not benefit from the exemption referred to in Article 6 Corporate Income Tax Act[2],
• does not benefit from the exemption referred to in Article 17(1)(34)(34a) Corporate Income Tax Act and by analogy Article 21(1)(63)(63b) Personal Income Tax Act[3],
• did not suffer a tax loss.

second the type of transaction introduced from 2022, are transactions executed only:

between foreign establishments of affiliated entities established in the territory of the Republic of Poland, located in a territory other than the Republic of Poland of a Member State of the European Union or another State belonging to the European Economic Area,

by a foreign establishment in the territory of the Republic of Poland of an entity resident, established or managed in a territory other than the Republic of Poland of a Member State of the European Union or of another State belonging to the European Economic Area with a related entity resident, established or managed in the territory of the Republic of Poland

• in a tax year in which revenue or costs resulting from such controlled transactions have been assigned to a foreign establishment, provided that none of the related parties in respect of those revenues or costs attributable to the foreign establishment benefits from the exemptions referred to earlier.

Further exemptions from the documentation obligation relate to transactions:

• subject to a prior price agreement, investment agreement or tax agreement for the period covered by such agreement;
• the value of which, in full, does not constitute income or the cost of obtaining income, excluding financial transactions, equity transactions and investment, fixed assets or intangible assets;
• between companies forming a tax holding;
• where the links arise solely from a link with the State Treasury or local government units or their associations;
• in which the price was fixed in an open tender procedure under the Act of 11 September 2019 - Public procurement law;

carried out between the group of agricultural producers entered in the register and its members concerning the sale of:

• (a) to a group of agricultural producers of products or groups of products produced on the holdings of members of such a group,
• (b) by a group of agricultural producers to its members of goods used by a member for the production of the products or groups of products referred to in point (a) and the provision of services related to that production;

- carried out between a pre-recognised group of fruit and vegetables producers or a recognised organisation of fruit and vegetables producers operating under the Act of 19 December 2003 on the organisation of the markets in fruit and vegetables and the hop market and its members, concerning the sale of:

• (a) to such a group or organisation of products or groups of products produced on holdings of members of such group or organisation,
• (b) by such a group or organisation to its members of the goods used by the member to produce the products or groups of products referred to in point (a) and to provide services related to that production;

to assign income to a foreign establishment located in the territory of the Republic of Poland by taxpayers not established in the territory of the Republic of Poland, if the provisions of the relevant international agreements to which the Republic of Poland is party provide that such income may be taxed only in a country other than the Republic of Poland;

consisting solely in the settlement between related entities of expenses incurred for the benefit of an unrelated entity, provided that all of the following conditions are met:

• (a) the added value is not generated and the settlement is made without account being taken of the profit margin or charge,
• (b) the settlement is not directly linked to another controlled transaction,
• (c) the settlement took place immediately after payment to an unrelated party,
• (d) the related entity is not a resident, established or managed entity in the territory or country applying harmful tax competition;
• services with low added value;
• on loan, credit or bond issuance - if the conditions for the so-called "safe harpour" are met.

As you can see, income tax laws in many cases exempt from documentary obligations, this is not only the case of non-compliance with transaction thresholds. The experienced transfer pricing team Russell Bedford Poland Sp. z o.o. will help not only to determine in detail the scope of the documentation obligation, but will also check whether your transactions can benefit from the statutory exemption. If you have transactions with related parties, please contact us.

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.