Following publication on 3 April 2018 new interpretation of the general Minister of Finance from 28 March 2018 on the mandatory update of tax documentation, it is worth looking at the subject matter of transactions carried out over many years and considering the appropriate approach to documenting such transactions.
The need to draw up tax records for such transactions is already established on the basis of the provisions previously in force, before the changes entered into force 1 January 2017 In most cases, such transactions, provided that their value in each of the years met the quota thresholds (which was not rare due to the not too high threshold value) were covered by tax records each year.
It should also be noted that one the elements of the documentation indicate the value of the transaction (...) The Minister of Finance indicated that system interpretation confirms the need for annual updates of the documentation produced for multi-annual transactions. In our opinion, too, this approach is in line with the objective of introducing mandatory revision and updating of documents, where the basic premise is to draw up documents that accurately reflect actual events and findings with the taxpayer.
Review and update of financial transactions continued in subsequent tax years
From 1 January 2017 The provisions of the Income Tax Act directly address this issue.
Under the same provisions of these laws (as appropriate Article 9a(2g) and Article 25a(2g) (updof) the tax documentation for transactions or other events continued in the following tax year (...) shall be periodically reviewed and updated at least every tax year.
It was probably the intention of the legislator to dispel any doubts about the obligation to draw up documentation for continued transactions.
However, some doubts remain, particularly with regard to financial and guarantee transactions, which are often implemented over many years after the date of conclusion and after the conditions for cooperation have been established.
In particular, there have been voices that provide sufficient tax documentation for the loan transaction for the period during which the contract was concluded.
In this general interpretation, the Minister of Finance explains that financial transactions, such as the granting of loans, loans, guarantees, guarantees, are generally continued transactions in subsequent tax years and, consequently, the tax documentation drawn up in the year of their commencement should be reviewed and updated in subsequent years.
It was also pointed out that if, in the course of these transactions, changes occur (e.g. a change in the maturity of the capital/interest, a change in the interest rate, a subsequent tranche) the information on such changes should be included in the documentation.
The purpose of the provision is clear – it is clear that all the terms of the transaction and their changes must be presented in the documentation.
However, the question arises as to what the taxpayer should do, who after reviewing his documentation for the loan granted in 2017 is 2018 The transaction was executed as planned and there were no changes in terms?
Leave such documentation with 2017 for a further period without making any changes, can it, however, include an endorsement that the review has been made and the conditions have not been changed?
The interpretation explains that the obligation to update is not excluded from the wording of the provisions in the absence of amendments, as indicated by the literal interpretation of the statement ‘review and update’, which means that the legislator expects the taxpayer to review both the documents in its possession and its applicable update.
It should also be noted that one from the elements of the documentation is the indication of the value of the transaction (which according to the Regulation of 12 September 2017 it concerns both the value resulting from invoices or other documents as well as the value of payments received or transferred). Referring to the content of this provision, the Minister of Finance indicated that the system interpretation confirms the need for annual updates of the documentation produced for multi-annual transactions.
In our opinion, too, this approach is in line with the objective of introducing mandatory revision and updating of documents, where the basic premise is to draw up documents that accurately reflect actual events and findings with the taxpayer.
How do we approach the obligation?
The tax documentation should be drawn up in its basic form for the period during which the transaction took place and the conditions for cooperation with the related entity were established.
If the transaction is subject to a mandatory (or voluntary) benchmarking analysis, this analysis should examine the conditions of the marketability of the transaction at the time of the transaction, i.e. on the basis of the data available at the time of the transaction.
Subsequently, an update of the documentation shall be carried out in each subsequent year and at least an endorsement shall be given of the absence of changes in the underlying terms of the transaction and the update of financial data, information on the value of the transactions carried out.
However, if the conditions for the execution of the transaction have changed to the original ones, all these changes should be indicated in the updated documentation. The most problematic situation in the case of multi-annual transactions is when the conditions for remuneration change.
In such situations, where a benchmark based on price determination has been drawn up for the transaction, it may be necessary to update that benchmark as well.
The issue of updating the benchmarking analysis was not addressed in the interpretation, as this was not the subject of it either. It is worth mentioning, however, that in the case of updating the benchmarking alone, it may be updated at least once per year.
3 years (if the economic conditions have not changed affecting the previous analysis). Therefore, the previously prepared analysis can be used to determine the market level of the revised terms of the transaction, unless there were such significant changes on the market.
In this context, there is also a question of the need to update the benchmarking analysis itself in situations where there has been no change in the terms of the transaction and the transaction is carried out for longer than 3 years. It is difficult to give a clear answer to this question.
Any such situation requires an individual assessment.
Finally, it should be mentioned that the obligation to update tax records also applies to transactions commenced before the date of entry into force of the new rules, and therefore to transactions started in the year 2016 and earlier, which continued.
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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.