Recently published proposals for changes in CIT and PIT are mainly commented on in the context of the granting of CIT to limited companies and certain companies the status of public taxpayers. Draft amendments, published 16 September on the website of the Government Legislative Centre, which is currently in the opinion stage, however, contains a number of other modifications worth paying attention to.
The proposed changes in transfer prices are of a two-fold nature, i.e. the changes are geared towards combating the transfer of income to so-called tax havens and in this respect increases documentation obligations, and second Parties shall simplify their obligations during the period of the emergency or epidemic situation in relation to COVID-19.
Extension of the documentation obligation with the so-called "tax havens"
The main changes in transfer pricing foreseen in the project relate to transactions with entities in the so-called ‘tax havens’ and are based on the determination of the document threshold for controlled transactions with entities in tax havens at the level of 100,000 PLN.
Let us remind you that the current documentation obligation is in principle covered by purchases with entities from tax havens (i.e. those in which payment of claims is made directly or indirectly to an entity established or managed in a territory or country applying harmful tax competition).
As a result of the proposed changes, revenue transactions with entities from tax havens will also be subject to documentation obligations.
Furthermore, the proposed amendments include an extension of the obligation to document transactions with companies from tax havens when the beneficial owner is resident, established or managed in those countries. Moreover, the presumption that the actual owner is resident, established or managed in a territory or country applying harmful tax competition was introduced if the other party to the transaction settles in the tax year with the entity established or the management “in a tax haven”.
In the light of the envisaged solutions, taxpayers will have to face the big challenges of verifying the "real owner" which may prove difficult in practice. It may not be possible to obtain information about our counterparties in many cases.
Additional documentation element
In the case of transactions with tax havens, the local transfer pricing documentation will also have to include the economic justification for the transaction, in particular the expected economic benefits, including tax benefits.
This information, according to the justification of the project, should enable an assessment of whether the so-called paradise entity carries out actual economic activities. An important part of this justification is the benefit test, i.e. a description of expected economic benefits, including tax benefits.
The economic advantage can be seen in improving competitiveness, acquiring new technology, etc. It is therefore necessary to assess in particular whether a related entity, acting economically rationally, would choose to purchase a benefit from a paradise entity.
Limitation of obligations in relation to COVID-19
Given the effects of the pandemic situation, the legislator intends to introduce three solutions aimed at mitigating the administrative burden with a deadline for implementation during the period of the epidemic or epidemic risk due to COVID-19.
Transfer price adjustments without a related party’s claim
The proposed facilitation consists in the introduction of an exemption from the obligation for the taxpayer to have a statement by the related party on the correction of transfer prices (according to Article 11e CIT Act). The exemption is intended to cover only adjustments made during the period of crisis caused COVID-19.
This Decision shall enter into force on the day following that of its publication.
Exemption from documentation obligation for domestic transactions also at a loss
The next proposed amendment concerns the possibility to benefit from the exemption from the obligation to draw up local transfer pricing documentation for domestic transactions (Article 11n(1) the Corporate Income Tax Act) by lossholders whose income in the tax year affected by the crisis COVID-19 fell by at least 50% for the total revenue obtained in the same period immediately prior to that year.
Statement of marketability
The amendments also concern the facilitation of the signature of declarations of drawing up local transfer pricing records. Declarations made for the tax year (turnover) or at the time when the whole territory of the Republic of Poland was subject to an outbreak or epidemic situation announced in connection with COVID-19, in accordance with the draft, may sign:
- 1) a natural person, in the case of a related natural person,
- 2) a person authorised by a foreign entrepreneur to represent him in a branch – in the case of a related foreign entrepreneur holding a branch in the territory of the Republic of Poland,
- 3) the person entitled to represent, for other related parties (e.g. capital companies).
It is still not possible to make a statement by a proxy.
Let us remind you that now, the statement must be signed by every person acting as head of the unit in accordance with the provisions of the Accounting Act.
The project is currently in the opinion stage. We will report on the progress of legislative work in this area.