Implementation of the new thresholds as amended from 1 January 2017 caused a lot of doubt on the part of taxpayers. In the case of foreign establishments, the situation may be particularly cumbersome, as the provisions do not indicate how these thresholds apply, in particular whether they relate to the results of the entire taxpayer or only the part assigned to the establishment.
According to the rules introducing the obligation to draw up tax records (Article 9a(5a) and Article 25a(5a) updof), the provisions should be applied to taxable persons operating in Poland. This also means applying to an establishment the thresholds determining the documentation obligation – both for the taxpayer (basic threshold) 2,000,000 EUR), and those concerning transactions/events one type (basic threshold 50,000 EUR).
Consequently, the concept of ‘transaction’ and ‘price’ used between the undertaking and the parent entity is a fiction to be adopted for the purpose of adequate allocation of costs and revenues to that undertaking. The compilation of documentation for these transactions largely boils down to the description of the adopted allocation key for these revenues and costs.
According to the general interpretation of the date 26 March 2018 as regards the obligation to draw up tax documentation by a foreign establishment, in the case of non-resident taxable persons operating in the territory of the Republic of Poland, the thresholds for transactions one type or event one type and threshold 2,000,000 EUR revenue or costs, which are obliged to draw up tax documentation, should be related only to revenues or costs generated by the taxpayer as a result of the activity of its foreign establishment located in the territory of the Republic of Poland.
On the basis of its position, the Ministry of Finance indicated that this was a different interpretation from the linguistic interpretation, but that the adoption of a linguistic interpretation in this case would imply the need to refer these thresholds to the results of the entire taxpayer, which could lead to an obligation on the undertaking to document transactions in which it did not participate at all.
Furthermore, as the Ministry of Finance points out, a solution different from the proposed interpretation, namely the application of thresholds to revenues or costs generated by the parent entity together with all its foreign establishments located in different countries, would be an excessive documentary burden on the part of a foreign plant located in the territory of Poland.
In practically many cases, it would be impossible to draw up such documentation from the level of the plant, because the representative of the plant does not have information on transactions concluded without the participation of the plant.
What ‘transactions’ should be included in the tax documentation for a foreign entrepreneur?
In addition to the question of how to set documentation thresholds, it is also worth noting the correct identification of transactions subject to a documentation obligation from the point of view of the establishment. We can point here. 2 groups:
- 1) transactions carried out by an undertaking with related entities, where the links should be identified at company level;
- 2) transactions between the undertaking and its parent unit.
The interpretation also indicates that a foreign plant located in the territory of the Republic of Poland is obliged to draw up tax documentation for transactions one the type carried out between that establishment and its home unit, which emphasises that the purpose of this provision was not to lay down separate rules for the setting of documentary thresholds for taxable persons who are non-resident and operate in the territory of the Republic of Poland.
In practice, it is often a very difficult task for taxpayers to draw up documentation for ‘transactions’ between the establishment and the home unit, since this is formally one the entity where the documents relating to the valuation of the benefit (such as contracts, agreements, calculations, etc.) do not appear for internal purposes on similar terms to cooperation with external entities.
Such intra-unit cooperation is even difficult to consider as transactions within the same meaning as in the case of cooperation with other entities, although there are certain economic events which are identified for the purpose of attributing an appropriate share of the company's profits to that undertaking.
Consequently, the concept of ‘transaction’ and ‘price’ used between the undertaking and the parent entity is a fiction to be adopted for the purpose of adequate allocation of costs and revenues to that undertaking.
The compilation of documentation for these transactions largely boils down to the description of the adopted allocation key for these revenues and costs.
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.