Documentary thresholds at transfer prices

What exactly are documentary thresholds? Simply put, these are values which must exceed a transaction between related parties (or between a taxpayer and an entity in the so-called ‘tax haven’ – not necessarily a related entity). They are closely linked to the examination of the documentation obligation. This seems simple – if the transaction exceeds the quota threshold, a tax record should be drawn up. It turns out, however, that not always.

Before present documentation thresholds are presented, it is worth mentioning for a moment a rather complicated way of examining the documentation obligation that was in force in years 2017 – 2018. All the more so, that the tax authorities still have the power to initiate controls on the documentation obligation to be drawn up for those years. Documentary obligation for a year 2018 the statute of limitations ends 2023

Briefly on the documentation obligation in years 2017 – 2018

The main condition was to exceed the quota threshold, however, the method of calculating these thresholds was quite complicated compared to previous or current provisions. During this period, a fixed amount (depending only on the type of individual transaction) was abandoned. The amount of the quota thresholds depended on the entity’s income, in addition, it was calculated in the simplest way.

Basic provision on the documentation obligation in the Corporate Income Tax Act according to the legal status for years 2017 – 2018, was Article 9a(1) According to which taxpayers:

1. whose revenue or costs, within the meaning of the accounting provisions, determined on the basis of the accounts kept exceeded the equivalent in the year preceding the tax year 2,000,000 EUR:

(a) transactions with related parties during the tax year (...), having a significant impact on their income (losses), or

(b) including in the tax year other events in the accounts the conditions of which have been established (or imposed) with associated entities (...) having a significant impact on their income (losses)

- or

1. making, directly or indirectly, payment of a claim to an entity resident, established or managed in a territory or in a country applying harmful tax competition resulting from a transaction or other event recorded in the accounts, if the total amount (or equivalent) resulting from the contract or actually paid in the tax year of the benefit exceeds the equivalent amount 20,000 EUR, or
2. containing with the resident entity, established or managed in the territory or country applying harmful tax competition:

(a) an agreement of a company not a legal person if the total value of the contributions contributed by the shareholders exceeds the equivalent 20,000 EUR or

(b) an agreement of a Joint Undertaking or other agreement of a similar nature in which the value of the jointly implemented project as defined in the Agreement and, in the absence of a determination in the Agreement of that value as expected at the date of conclusion of the Agreement, exceeds the equivalent 20,000 EUR

• are obliged to draw up tax records for these transactions or other events (...).

two the added paragraphs, i.e. 1d and 1e, brought together the type of transactions that the legislator considered to be significant, i.e. having a significant impact on the taxpayer's income/loss, subject to documentary obligation.

According to Article 9a(1d) Corporate Income Tax Act, transactions or other events were considered to be such transactions one types whose total value exceeds the equivalent in the tax year 50,000 EUR, except that in the case of taxable persons whose income within the meaning of the accounting provisions exceeds the equivalent of:

1. 2,000,000 EUR, but not more than the equivalent 20,000,000 EUR - transactions or other events shall be considered as transactions or other events one Types whose value exceeds in the tax year the amount equivalent to the amount 50,000 EUR plus 5,000 EUR for each 1,000,000 EUR revenue above 2,000,000 EUR,
2. 20,000,000 EUR, but not more than the equivalent 100,000,000 EUR - transactions or other events shall be considered as transactions or other events one Types whose value exceeds in the tax year the amount equivalent to the amount 140,000 EUR plus 45,000 EUR for each 10,000,000 EUR revenue above 20,000,000 EUR,
3. 100,000,000 EUR - transactions or other events shall be considered as transactions or other events one types whose value in the tax year exceeds the amount equivalent to the amount 500,000 EUR.

However, according to Article 9a(1e) Corporate income tax laws for transactions or other events having a significant impact on the amount of income / loss of the taxpayer were also recognised in the tax year:

1. an agreement of a non-legal person in which the total value of the contributions made by the shareholders exceeds the equivalent 50,000 EUR or
2. an agreement of a joint venture or other agreement of a similar nature in which the value of the jointly implemented project as defined in the contract and, in the absence of a determination of that value in the contract as expected at the date of conclusion of the contract, exceeds the equivalent 50,000 EUR.

Current legislation

Fortunately, the current rules are less stringent than those in force in years 2017 – 2018. First of all, the obligation to document the revenue of the entity was waived. The obligation to draw up tax records has now been restored where the value of the transaction exceeds a fixed, defined threshold (depending on its type). Equally important – for the time being first The thresholds are not expressed in EUR but in PLN.

By Article 11k(2) Corporate Income Tax Act[1] The current Corporate Income Tax Act, the local transfer pricing documentation should be drawn up for a controlled transaction, the value of which, less tax on goods and services, exceeds the following documentation thresholds in the financial year:

• 1) 10,000,000 PLN - in the case of a commodity transaction,
• 2) 10,000,000 PLN - in the case of a financial transaction,
• 3) 2,000,000 PLN - for a service transaction,
• 4) 2,000,000 PLN - for transactions other than those specified in the above paragraphs.

It is worth adding that according to Article 11k(3) Corporate Income Tax Act, the above documentation thresholds are set separately for:

• 1) any controlled transaction of a homogeneous nature irrespective of the assignment of the controlled transaction to a commodity, financial, service or other transaction;
• 2) the cost and revenue side.

What about transactions with entities in the so-called ‘tax havens’? In terms of thresholds for these transactions there were several changes from 2019, including the issue of obligations related to so-called "indirect Paradise transactions", but this is a subject for separate consideration. Eventually, at the end 2022 the legislator has introduced the following quota thresholds:

• - 2,500,000 PLN - in the case of a financial transaction,
• - 500,000 PLN - for transactions other than financial transactions.

In which case, according to Article 11k(2a) and Article 11o(1) Corporate Income Tax Act as it stands, the above thresholds apply to both controlled and "uncontrolled" transactions.[2].

Knowledge of the documentation thresholds is needed to verify whether there is an obligation to draw up tax transfer pricing documentation for transactions with related parties (and in the case of ‘paradise entities’)

If you have doubts about the above, please contact us. Transfer pricing team Russell Bedford Poland Sp. z o.o. provides help.

Author: Michał Zdanowski, project manager.

Graduate of the Faculty of Law and Administration of the University of Warsaw, Graduate of the Postgraduate Tax and Tax Law Studies of the University of Warsaw, Graduate of the Postgraduate Accounting and Finance Studies of the Warsaw School of Economics. Since September 2013 is associated with the law firm Russell Bedford Poland. Specializes in transfer pricing. Together with an experienced team, he supports leading companies in fulfilling tax obligations in terms of transfer prices.