In the context of the announcements we have already discussed regarding the introduction of new regulations concerning the procedure for obtaining interpretations through a group request, it is worth noting those that have emerged recently and the subject of the obligation to draw up documents of interest to us.
Today we will deal with the problems that people are dealing with in drawing up transfer pricing documentation. We will review the interpretations corresponding, among others, to the following questions: how to approach documentation in the case of advances paid to shareholders, mergers of companies, or drawing up documentation when for 2016 obligation occurred, but in 2017 Are we no longer fulfilling the conditions?
- Advances paid and non-payment by the shareholder of the profit advance and the documentation obligation 1
In the description of the facts, the applicant indicated that during the course of 2016 and 2017 the company paid advance payments to the limited partnership for profit in connection with the company's business activities.
After both 2016 and 2017 The tax found that the company did not receive a profit in the amount corresponding to the advance payments. Therefore, the advances should be reimbursed by the consultant. The consultant didn't return the advance.
No advance settlement agreement was concluded between the limited partnership and the limited partnership, in particular the loan conversion agreement.
There is no obligation to draw up a tax documentation in respect of advances paid to the shareholder in respect of the share of profit in the limited partnership and the resulting revenue from the unpaid benefit, both in the legal state before 1 January 2017, as well as those applicable from 1 January 2017
On the basis of the above, in the context of the facts presented, the payment of advances on profit should not be identified as a transaction, i.e. the result of the implementation of the provisions of the company's contract, in which the arrangements for their possible payment should be made. Payment of the advance is not a stand-alone act or event, but may be the result of a transaction (basic activity).
At the same time, when considering the above circumstances under the provisions of the Personal Income Tax Act, it should be noted that, in the event that the advance is paid to the shareholder, the company's expected profit for the financial year will not reach and yet the shareholder will not reimburse the company for the amounts collected for such a profit, it is necessary to obtain an unpaid benefit by the shareholder, consisting in the possibility of using other persons' funds free of charge.
The income referred to above should be set at the interest which the shareholder would have to pay if the funds collected in advance (in excess of the shareholder's share of the company's profit) were a loan (as applicable to Article 11(2a)(4) Personal Income Tax Act).
In this situation, such a defined income from the unpaid benefit is difficult to assess by the principle of the transaction, since it is not a consequence of the action (e.g. the grant of a benefit in kind) of the parties, due to the failure to act – the absence of a refund of the advance on profit. The applicant stresses that no advance settlement agreement was concluded in particular the loan conversion agreement.
In conclusion, it must be concluded that in the area of personal income tax The person concerned is not required to draw up a tax documentation in respect of advance payments to the shareholder in respect of the share of profit in the limited partnership and the resulting revenue from the unpaid benefit, both in the legal state before 1 January 2017, and from 1 January 2017
- The need to draw up documentation where, in view of the new regulations, the taxpayer is already subject to a documentation obligation, with respect to 2017 does not meet the conditions 2
There are signs that the doubts raised in this proposal often arise in the case of an attempt to properly identify documentation obligations in the face of new regulations. When analysing the new requirements for its own group of related parties, it can be concluded that some of the related companies do not meet the new requirements (e.g.
due to the premise 2,000,000 EUR revenue/costs) – but still for 2016 the same company was subject to a documentation obligation – there are doubts as to whether the 2017 This obligation 100% He's not coming.
The analogous situation was presented by the taxpayer in the interpretation - according to the presented event of the future Company In 2016 was required to draw up a tax documentation covering transactions with related parties. Doubts The Applicant concerns the obligation to prepare transaction documentation for 2017 where the Company has prepared such documentation In 2016, Although she would not be obliged to draw it up on the basis of Article 9a(1) the Corporate Income Tax Act after the amendment (if neither the revenue nor the costs of the Company exceed the equivalent value 2,000,000 EUR).
If the company in the year 2016 the company prepared documentation in accordance with the previous regulation, but in accordance with the amendment in the year 2017 does not meet the conditions for drawing up the dossier, in relation to 2017 the obligation to draw up documentation for that period will not occur.
If, on the date of entry into force of the amended provisions, the taxable person fails to comply with the conditions indicated under Article 9a(1)(1) the Corporate Income Tax Act, that too Article 9a(1a) the Corporate Income Tax Act will not apply to him. (...) It should be stated that when the Company prepared tax documentation In 2016, Although she would not be obliged to draw it up on the basis of Article 9a(1)(1) the Corporate Income Tax Act after the amendment (if neither the revenue nor the costs of the Company exceed the equivalent value 2,000,000 EUR), and none of the other conditions indicated under Article 9a(1)(2) and 3 the Corporate Income Tax Act, The applicant shall not be obliged to draw up documentation for 2017
In summary, if the company in the year 2016 the company prepared documentation in accordance with the previous regulation, but in accordance with the amendment in the year 2017 does not meet the conditions for drawing up the dossier, in relation to 2017 the obligation to draw up documentation for that period will not occur.
3. Merger of companies and documentation obligation 3
According to the future event presented in the request, the merger of the Applicant with another entity from the Group was considered. The connection will be conducted according to Article 492(1) KSH – merger by acquisition. The merger of the companies was to take place without the Applicant taking up its own shares and without an increase in the share capital of the Applicant. The acquiring company will have 100% shares in the Company.
The concerns of the Applicant concern whether, in the event of an economic event, the merger of the Applicant with the Company taking over, The applicant shall be required to draw up for the combination of the documentation in question. Under Article 9a Corporate Income Tax Act.
Taking into account the interpretation described and the future event presented, it must be concluded that the proposed merger of companies constitutes a ‘transaction or other event’ within the meaning of the provisions Article 9a Corporate Income Tax Act. Therefore, the applicant will be required to draw up the tax documentation (the so-called transfer pricing documentation) concerned Article 9a(1) the Corporate Income Tax Act Consequently, provisions Article 9a(1)(1) and Article 11(1) and (4) The abovementioned laws will be applicable in the case of the proposed merger of the Applicant with the Company.
The merger of companies requires documentation.
It should be pointed out that the ‘conditions’ laid down in the above-mentioned rules (which differ from those which would have been determined by independent entities) may relate to arrangements between connected entities under the merger, if the basis for the determination of those conditions is not market factors but those conditions have been imposed or established as a result of existing links. Thus, if the conditions of such economic events deviate from those which would be established by unrelated parties in the same situation and consequently the applicant would have obtained revenue below what would have been expected if the applicant’s relationship with the subsidiary had not existed, the Polish tax authorities would have obtained revenue on the basis of Article 11 Corporate Income Tax Acts could determine the income of the Applicant without taking into account the conditions resulting from these links.
In conclusion, according to the decision of the interpretative body, the merger of companies requires that documentation be produced.
The analysis was prepared by:
Leszek Dutkiewicz
Bożena Pawłowska
1 reference no. 0115-KDIT3.4011.172.2018.4.MR of 19 June 2018 (No. of Doc. 533974/I)
2 reference no. 0111-KDIB2-3.4010.109.2018.1.PB dn. 19 June 2018 (No. of Doc. 534023/I)
3 reference no. 0114-KDIP2-2.4010.254.2018.1.AM of 14 June 2018 (No. of Doc. 533944/I)
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.