The correct way to determine the amount of the transaction with the related entity up to the limit for transfer pricing is still of great interest. It is the obligation to document transactions that depends on the correct determination and comparison of these values.
The underlying transaction value threshold at present is 50,000 EUR and is adjusted accordingly according to the values achieved by the taxable person. Therefore, any taxable person trading with associated entities should set its own individual documentation threshold based on the financial results of the previous year (e.g.
year-related obligations). 2017 we consider the results from 2016, for the purposes of conversion to Polish gold we take the course from 31 December 2016. This issue on the part of taxpayers does not raise much doubt.
Tax payers should always take into account the gross value of the transactions to be cleared, i.e. with VAT, if it has been charged in accordance with the provisions on goods and services tax.
This leads to a lack of uniform treatment for the documentation thresholds for taxed and non-taxed benefits and benefits for which different rates are applied.
From a fairly practical point of view, in many cases this simply means that, in border situations, it will be easier for taxpayers to meet the condition that tax records are required.
What can undoubtedly cause difficulties is the proper determination of the individual value of the transaction that belongs to such a limit. At this point there are issues such as the admissibility and rules for grouping transactions, as well as the determination of the value of transactions in terms of the amount of VAT.
Admissibility and rules for grouping transactions
About first of these issues, it is on 24 January 2018 The Minister of Finance issued a general interpretation no. DCT.8201.1.2018, in which many (although not all) doubts about grouping have been explained.
In particular, the concept of ‘one type’ referred to under Article 9a(1d) the Corporate Income Tax Act and Article 25a(1d) the Personal Income Tax Act be used for both ‘transaction’ and ‘other events’. Thus, the possibility of grouping transactions was allowed, which was the subject of many previous discussions.
It was also indicated that in the case of transactions one the nature of the transaction with several related entities should be determined by summing up the total value of that type of transaction in relation to those related entities.
Determination of VAT value of transactions
With regard to the second question, i.e. the determination of the value of transactions in gross or net amounts, the practice so-far developed has tended to take into account the gross amount for the purposes of determining the value of transactions. This was mainly based on the argument that the legislation referred to the payment of claims resulting from the transaction, and since the settlement is gross, such value should also be taken for the purpose of examining the value of the transaction.
However, the provisions were amended at the beginning 2017. According to the current burden of the provision Article 9a(1d) the Corporate Income Tax Act the documentation obligation is subject to transactions or other events the total value of which exceeds in the tax year the equivalent of a certain amount threshold (the basic threshold is 50,000 EUR).
In the light of this change, the tax payers had some doubts as to whether the current practice of referring gross value to the statutory thresholds remains valid.
In one applicant argued from the request for an individual interpretation that the legislator's intention to introduce a documentary obligation was to cover such transactions which have a significant impact on the taxpayer's income (loss).
Since the value of the transaction should be examined for income, the value of VAT, where this is deductible, remains neutral against the amount of income. The applicant also indicated that taking into account the gross value would result in different treatment of transactions that are taxed differently (various rates, exemptions).
The taxpayer also pointed out that for the purposes of the simplified report (CIT-TP/PIT-TP) it was clearly indicated that the net amounts should be declared for each type of transaction.
Gross amounts should be taken into account in the context of the statutory limits
Director of National Tax Administration on 21 February 2018, in response to the request, issued an individual interpretation reference no. 0111-KDIB1-2.4010.460.2017.1.AW, in which he clearly indicated that for the purposes of examining the value of transactions in the context of the statutory limits, account should be taken of the gross amounts of the cleared transactions, i.e. taking into account the value of VAT.
On the basis of his position, the Director of Tax Administration indicated that the Income Tax Act for the purpose of determining the value of the transaction refers to the content of the accounting provisions, and therefore, in the opinion of the Interpretative Body, the inclusion of those provisions in the Corporate Income Tax Act, under which VAT is in principle neutral, does not constitute an indication of the value of the transaction without the tax on goods and services, i.e. net value.
As a consequence, taxpayers should always take into account the gross value of the transactions to be cleared, i.e. with VAT, if it has been charged in accordance with the provisions on tax on goods and services.
This leads to a lack of uniform treatment for the documentation thresholds for taxed and non-taxed benefits and benefits for which different rates are applied.
From a fairly practical point of view, in many cases this simply means that, in border situations, it will be easier for taxpayers to meet the condition that tax records are required. This situation can be illustrated on a simple example, which is presented below.
Example
Tax payer in the year 2017 implemented two related party transactions. Transaction in the provision of technical advice to an Austrian value-related customer 75,000 EUR net on a yearly basis (transaction was not subject to VAT in Poland) and delivery of goods to a Polish related counterparty of value 75,000 EUR net (VAT taxed in Poland) 23%. The taxpayer realized in the year 2016 revenue exceeding the equivalent 8,000,000 EUR.
First, the scope of the obligations should be determined on the basis of an income-cost criterion. On the scope of documentation obligations for the year 2017 determine revenue and costs realised in the year 2016. Overshoot of revenue at the level 2,000,000 EUR makes the taxpayer obliged to draw up local tax records for significant transactions. Substantial transactions are in principle those whose value exceeds 50,000 EUR. However, if 2016 realised revenue exceeded 8,000,000 EUR, for this taxpayer, the individual threshold of a significant transaction will be 80,000 EUR (additional 5,000 EUR include for everyone 1,000,000 EUR above limit value 2,000,000 EUR). Thus, given the above interpretation, the taxable person in the case of transactions:
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- realised to a related Austrian counterparty of value 75,000 EUR net will not be required to draw up tax records;
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- realised to a related Polish counterparty of value 75,000 EUR net (92,250 EUR (gross) will be required to draw up local tax records.
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.