Documentary obligations in the current state of the law require the preparation of TP documentation even if our counterparty purchases in a country listed on the tax haven list. Those obliged to draw up documentation should now implement a tax procedure to prove that due diligence procedures have been followed, which would significantly reduce the obligation to draw up local transfer pricing documentation.
According to the provisions of the Polish Income Tax Act, affiliated entities are not the only group of entities under the obligation to draw up local transfer pricing documentation. Tax laws indicate two further groups of entities.
The first group shall be taxable persons and non-legal persons carrying out transactions other than a controlled transaction with a resident, established or managed entity in the territory of a country applying harmful tax competition if the value of that transaction for the tax year and, in the case of non-legal companies, for the financial year exceeds 100,000 PLN.
A second group of entities required to draw up local transfer pricing records are taxable persons and non-legal persons carrying out a controlled or non-controlled transaction if the actual owner is resident, established or managed in a country applying harmful tax competition and the value of that transaction for the tax year, and in the case of non-legal companies for the financial year, exceeds 500,000 PLN.
When examining the provisions of the Act, one can consider situations that are approaching absurdity.
Since the new year, these taxpayers have been required to draw up local transfer pricing documentation for transactions other than controlled:
- with entities in ‘tax havens’, if its value for the tax year and for non-legal companies for the financial year exceeds 100,000 PLN,
- with an entity whose actual owner is resident, established or managed in the territory of the ‘tax haven’ and the value of that transaction for the tax year and, in the case of companies not legal persons, for the financial year, exceeds 500,000 PLN.
A list of countries applying harmful tax competition is set out in the Finance Minister's Regulation and this list includes countries such as the Principality of Andorra, the Principality of Monaco or Hong Kong.
At this point, consideration should be given to how to interpret the provision "if the actual owner is resident, established or managed in a territory or country applying harmful tax competition".
Legislative Article 23za(1b) Act of 26 July 1991 on personal income tax and Article 11o(1b) Act of 15 February 1992 of corporation tax indicates that the beneficial owner is resident, established or managed in the territory of a country applying harmful tax competition, if the other party to the transactions referred to in section 1a, shall settle in the tax year or financial year with the entity established or managed in the territory or country applying harmful tax competition.
When determining these circumstances, a taxable person or a non-legal person shall be obliged to exercise due diligence. When examining the provisions of the Act, one can consider situations that are facing absurdity.
Imagine that. You run a company with a commercial profile. The main outlets are EU countries and only with EU players do trade. One of your customers is an entity based in Germany. The value of sales to that entity in each tax year exceeds 500,000 PLN.
The German entity is a large company that sponsors the best traders each year to race the formula 1 to Monaco. It is also easy to imagine the journey of our contractor by plane with a switchover in Hong Kong. While waiting for the aircraft, the contractor makes transactions for which he pays with a corporate card.
According to these regulations, in both cases a local transfer pricing documentation may be required. To avoid such a situation, we encourage the introduction of due diligence procedures. We encourage you to contact our offices in Warsaw, Katowice, Gdańsk and Bydgoszcz.
Author: Przemysław Kujawa, Director of the office in Bydgoszcz. Tax adviser listed on the National Board of Tax Advisors. Economist.