The public consultation has led to a revision of the proposed transfer pricing legislation. The comments were intended to limit the freedom of interpretation of the rules applied in practice by tax authorities. The following are the most important changes taken into account by the Ministry of Finance.
The draft law on corporate income tax clarifies the concept of the relationship between companies forming the Tax Tax Group and their foreign establishments. It was indicated that the related entities were considered as an entity and its foreign establishment.
The uniform nature of transactions and the aggregation of controlled transactions should always be examined in a specific case, as they will depend in particular on the functions, risks and assets of the parties to the transaction, as well as on the transfer pricing methodology adopted
It was also proposed to amend the provisions allowing tax authorities to omit or change the classification of transactions and estimate the income due on the basis of their own interpretation of the established economic conditions. Comments were aimed at preventing abuse during the checks carried out.
The Ministry of Finance agreed, however, to partial concessions. The criteria on the basis of which the authority will be able to refuse to recognise or re-establish the transaction will be laid down in the Implementing Regulation.
It was also stressed that the homogenous nature of transactions and the aggregation of controlled transactions should always be investigated in a specific case, as they will depend in particular on the functions, risks and assets of the parties to the transaction, as well as on the transfer pricing method adopted.
An additional element of local documentation will be functional analysis, which allows precise identification of the role of individual parties in the documented transaction and identification of the functional profile of each party. Consequently, it allows verification of whether the method of calculating the price in a transaction with a related entity has been chosen correctly and corresponds to the range of functions, assets involved and risks incurred.
The Ministry of Finance also agreed that taxpayers should be entitled to use any method of price calculation by referring to the criteria for selecting the most appropriate method. Therefore, it was left free to choose the method of price calculation.
The issue of adjustment of transfer prices was also raised. It was pointed out that the entire activity of the taxpayer in relation to related entities, and not only the controlled transaction, could be subject to a transfer price adjustment.
A new exemption was also taken into account for transactions between related parties showing income for a given year and taxed at the same income tax rate. The draft Act will regulate the exemption from the obligation to draw up transfer pricing documentation and comparative analyses for domestic transactions.
Account has also been taken of the fact that the analysis of comparative data/conformities by taxpayers prior to the entry into force of the Act remains valid by three subsequent years, unless a change in economic conditions to an extent significantly affecting the analysis of comparative data justifies a review during the year of that change.
A full public consultation report can be found at:
https://legislacja.rcl.gov.pl/docs//2/12313855/12522183/12522187/dokument354913.pdf
Russell Bedford Poland offers comprehensive advice on transfer prices to entrepreneurs. Our services include preparing transfer pricing documentation, analysing comparative data. A team of experienced specialists treat each case individually. We choose optimal solutions for each customer.
Author:
Aurelia Ulita
Younger consultant in the tax advisory department. From 2017 associated with Russell Bedford Poland. Graduated from the Faculty of Law and Administration of Maria Curie-Skłodowska University in Lublin. She gained her professional experience in renowned Lublin tax law firms. Its professional interests are tax law and, in particular, income taxes.