TPR and transactions exempted from documentation obligation

At the end of the year, uncertainty related to changes related to the project "Polish Deal”. In addition, it is important to bear in mind the obligations imposed on companies at the closure of the tax year and to start preparing for them. In particular, this concerns transfer pricing documentation obligations.

Why is it worth writing about? Probably because for many entities, the information about the postponement of deadlines is missing in the flood of changes, proposals and other tax issues. As last year, the legislator decided to extend the deadline, as a result of the prevailing epidemiological conditions, for drawing up transfer pricing documentation, together with making a statement and submitting TPR-C and TPR-P information[1].

Based on Act dated 30 March 2021 amending the Excise Tax Act and certain other laws[2] change under Article 31z Act dated 2 March 2020 specific prevention, prevention and eradication solutions COVID-19, other infectious diseases and the resulting crises[3]. The current deadline for submitting the required documents is extended to:

• up to day 31 December 2020 – where that time limit expires from the date of 31 March 2020 up to day 30 September 2020;
• o 3 months — where that period expires from 1 October 2020 to 31 January 2021;
• up to day 30 September 2021 – where that time limit expires from the date of 1 February 2021 up to day 30 June 2021;
• o 3 months, where that period expires from the date 1 July 2021 up to day 31 December 2021

As can be seen, for some entities this term may be much more significant than for others. But now that it's time two months, for most entities this will be 31 December 2021, Then why is it worth taking care of now?

The reasons are many and the vast majority of them are due to the underestimation of the time needed to collect relevant information and problems that may arise during the preparation of documentation and benchmarking.

In addition, you need to transfer this information to the TPR information printout that has been 15 July modified this year, according to changes in the Regulations of the Minister of Finance[4]. Therefore, you should not put this aside at the last minute, so as not to be surprised when the form looks different than before.

Tax authorities provide explanations

A further problem may be the ongoing ambiguities in specific and specific cases that may arise in relation to transactions with related parties. Especially intriguing are those related to Article 11n Corporate Income Tax Act (hereinafter: CIT Act)[5] and Article 23z Personal Income Tax Act (dale: PIT Act)[6], in which the conditions for exemption from the obligation to draw up local transfer pricing documentation are indicated.

In this respect, a substantial personal interpretation has already been given, which clarified how the thresholds should be set after exceeding which the documentation obligation arises.[7]. It confirmed that in the case of a homogeneous transaction in which there are both compliant and non-compliant entities from Article 11n Act on CIT or from Article 23z the PIT Act, in so far as the exclusion of exempt entities does not result in the threshold being exceeded, The company will not be required to draw up local transfer pricing documentation for this transaction.

Another significant tax interpretation was issued 31 August This year[8]. The essence of this interpretation is to answer questions relating to a similar situation as described above but to the filling in of TPR information. There were no unambiguous answers in the tax rules as to how to properly transfer such facts to the form in order not to mislead the investigating authorities or to inadvertently conceal the required information.

The Company's actual situation, as described in the proposal, indicated that it contains homogeneous transactions with entities comparable to those for which an exemption can be applied on the basis of Article 11n(1) CIT and related entities for which the exemption is not possible. According to this, the applicant asked questions about the obligation to display in TPR-C information for a number of possible cases that might arise in such a situation.

Interpretation conclusions

In response, the tax authority supported the legal assessment of the applicant’s actual situation. In the explanatory memorandum, he stated that the taxpayer:

is required to provide information on transfer prices only for the part of the transactions in which the exemption is not applicable on the basis of Article 11n(1) CIT Act - in case the value of the controlled transaction after deduction of the value of the transaction that is mentioned under Article 11n(1) The CIT Act exceeds the amounts specified under Article 11k(2), Whereas the value of the transaction exempted under the abovementioned provisions does not exceed those amounts,

is obliged to submit a TPR only for that part of the transactions in which it is exempted on the basis of Article 11n(1) CIT Act - where the value of the transaction that is mentioned under Article 11n(1) exceeds the amounts specified under Article 11k(2) The CIT Act, while the rest of the transactions do not exceed those amounts,

is not obliged to submit transfer pricing information where both the value of the transaction mentioned under Article 11n(1) The CIT Act and the rest of the transaction do not exceed the amounts specified under Article 11k(2) that law

This complex mechanism will better explain the following example with the table attached to it.

Example

XYZ Sp. z o.o. transactions goods with its related entities, some of which are subject to exemption from the Article 11n The CIT Act and part of it doesn't. The filling in of TPR-C information, depending on the specific transaction values, should be carried out as follows:

Value of transactions exempted

Value of non-exempt transaction

Obligation on TPR information

above 10,000,000

above 10,000,000

Show in two separate fields of which the part of the transaction that meets the conditions for exemption shall be shown in TPR information in a simplified manner.

below 10,000,000

above 10,000,000

To be reported as part of the transaction in non-exempt entities Article 11n CIT Act.

above 10,000,000

below 10,000,000

To be reported as part of the transaction with the exempted entities Article 11n The CIT Act is simplified.

below 10,000,000

below 10,000,000

No TPR information obligation.

Source: Own development

This is another example of a favourable interpretation line in terms of transfer prices. This reduces, rather extensive, information obligations for related parties and provides certainty to many entities carrying out such transactions on the compilation of TPR information at the end of the tax year.

[1] Next: TPR information

[2] (Journal of Laws of 2021, item 694)

[3] (Journal of Laws, item 1842)

Damian Kuszewski

The author is a graduate of the Warsaw School of Economics in Finance and Accounting, and a graduate of the Faculty of Law at SWPS. From 2018 Associated with Russel Bedford Poland. His professional interests are tax law and, in particular, income taxes.