The amendment of the rules on the preparation of transfer pricing tax documentation formally entered into force at the beginning of the year 2017. Many taxpayers have used the period to date to adapt the procedures for drawing up tax records to new requirements.
However, the greatest interest in this topic is now at the beginning of the year 2018. For now, with the end 2017, taxpayers have serious doubts as to how to document transactions carried out in the year 2017.
Undoubtedly, the mobilizing factor is two Legal circumstances: first formal obligation to produce documentation within the time limit three months after the end of the tax year, and second, the obligation to make a statement to the competent tax authority within the same time limit that such documentation has been drawn up.
The beginning of the year is the right time to look at the current legal situation regarding the so-called new documentation requirements and try to assess it. On the basis of an analysis of the rules already in force and of our own experience and our customers, we would like to draw attention to aspects that give rise to particular doubts or difficulties.
It is therefore appropriate to take a look at the current legal situation regarding the so-called new documentation requirements and try to assess it. On the basis of an analysis of the rules already in force and of our own experience and our customers, we would like to draw attention to aspects that give rise to particular doubts or difficulties.
1. Obligation to draw up comparative analyses
This obligation applies to all taxable persons whose income or costs within the meaning of the Accounting Act have exceeded the equivalent 10,000,000 EUR, with regard to documentation of transactions in 2017 the amount of revenue and costs achieved in the year must be checked 2016.
This is a requirement which is perhaps the most common cause of increased interest in transfer prices at the moment. Many taxpayers who have produced tax records for their transactions even for many years now for the time being first they are faced with the need for benchmarking.
In the Regulation of the Minister of Finance of September 2017 a slightly more precise description of the elements to be included in the comparative analysis, but still from a practical point of view it is one with the most difficult elements of documentation to prepare.
2. New elements of local documentation
Among the new elements that should be included in the documentation, it has been established that, when indicating the method of determining the transaction price, the choice of the method of income calculation should be justified and the accounting algorithm for transactions with related parties described. This requirement was introduced to ensure that taxpayers present in a structured scheme how the remuneration used in the transaction with the related entity was calculated, indicating all the elements of the price.
3. Need for group documentation
It is certainly necessary for larger entities in the additional documentation group to have the characteristics of the entire group. Preparation of group documentation requires very detailed knowledge of the organisation of the entire group.
In addition, the current wording of the Income Tax Act uses the concept of a group of related parties, which would suggest that all links, including personal ones, should be analysed for the identification of the group.
On the other hand, the Regulation states that when preparing a description of the group's organisational structure, a scheme should be drawn up indicating the entities involved in the capital.
- Identification of the transactions to be documented, the possibility of grouping transactions
On this issue, taxpayers' doubts are not new. However, from 1 January 2017 the provision which, as it stands, specifies that the obligation to draw up a dossier relates to ‘transaction or other events’ has been amended one of a kind’.
Contrary to what was expected, the amendment did not remove doubts as to the acceptability of grouping links for testing their values in relation to the documentation thresholds laid down in the legislation. There were doubts as to whether the term "one the type’ applies only to other events or transactions.
On 24 January 2018 The Minister of Finance issued a general interpretation no. DCT.8201.1.2018, in which it is stated unequivocally that the documentation thresholds should be applied separately to each type of transaction or to each type of other event.
It was clarified that the aim of the thresholds was to limit the number of transactions subject to documentary obligation to those relevant for the taxpayer.
At the same time, it was established that, in the case of the same type of transaction to several related entities, the total value of the transaction in relation to those several entities should be included in the documentation thresholds.
5. Identification of links
Another subject, in which taxpayers have been faced with practical difficulties for a long time, is the appropriate way to identify the links which result in the obligation to document the units concerned. According to the revised provision, capital links are identified at materiality level 25% direct or indirect capital.
The question of the depth of the connections has still not been resolved. In addition to capital links, they remain for analysis of personal links – management and control, property, family and employment relationships, whose precise definition is often much more difficult than capital.
Author:
Leszek Dutkiewicz
Partner at Russell Bedford. From 2011 related to Russell Bedford Poland. 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.