The preparation of a transfer pricing analysis (the so-called benchmarking analysis) poses a significant challenge for taxpayers to maintain the conditions for comparability of data used in this process. Failure to meet the criteria of comparability results in far-reaching consequences, including the risk of the analysis being considered unreliable and the choice of control findings.
Where the assumptions taken for the analysis of transfer prices (e.g.
the subject-matter criterion, the indicator examined, the geographical area under examination) do not correspond to the particularities of the transaction and are therefore not sufficiently comparable, it may be necessary to make use of a comparison adjustment aimed at increasing the reliability of the analysis of transfer prices by achieving greater consistency between the transaction under consideration and transactions carried out by unrelated parties.
It should be stressed that there is no formalised and described procedure for making adjustments to comparability.
According to the MF explanations, the application of the comparability adjustment is possible if this results in a higher degree of comparability of the data of the controlled transaction using the appropriate transfer price verification method and differences in comparability will be measurable. However, in practice, situations may arise where the application of this correction is not justified.
Some guidance on the assessment of the appropriateness of the correction was presented by the Transfer Pricing Forum in its recommendations, indicating the factors to be followed in assessing the appropriateness of the correction, namely:
- the relevance of the differences causing the correction,
- quality of the data to be corrected,
- the possibility of ensuring a credible correction.
On the other hand, the OECD Guidelines stress that there will always be some differences between the transactions carried out by the taxpayer and those carried out by comparable parties. third. Comparative analysis may be appropriate despite an uncorrected difference, provided this does not impair its credibility.
On the other hand, having to make numerous or significant adjustments to the key factors of comparability may indicate that transactions with entities third in fact, they are not comparable enough.
Examples of comparable adjustments include adjustments to accounting consistency aimed at eliminating differences that may arise from different accounting practices between controlled and uncontrolled transactions, financial data segments to eliminate significant, incomparable transactions, adjustments for differences in capital, functions, assets and risks.
The decision to correct the comparability and the manner in which it is carried out should therefore be examined individually in each case.
Tax payers who consider that the correction of their transactions is justified and indeed the comparative analysis has been corrected by them are required to indicate in the TPR declaration that 2022, one of the following headings:
- correction of comparability modifying the result by less than 30%;
- a correction of comparability amending the result by 30% or more;
- there is no possibility to determine the effect of correction on the result.
This element of TPR information raises a number of questions, especially in terms of the method of calculating the percentage impact of correction of comparability on the change in the outcome of the analysis. The Ministry of Finance addressed this and other problems of taxpayers in the recently published TPR Information Sheet (issue IV).
From the answers to questions there (No. 85 and 86) it follows that the percentage impact of the adjustment of comparability on the outcome of the benchmarking analysis will depend on the type of benchmarking carried out and the method of verification of the transfer price and the number of adjustments made to comparability. In addition, attention should be paid to the type of range used to verify the transfer price and reported in the TPR Information – interquarterly, full or other range.
If the comparative analysis is performed e.g. by PCN method and the result is one value, then the effect of the adjustment on the result can be calculated on the basis of one actions. If the result of the benchmarking indicates a comparable minimum and maximum value, this will require third calculation:
- 1) the impact of the correction on the result of the minimum value,
- 2) the impact of the correction on the maximum value,
- 3) mean calculated from the above two actions.
In the case of financial transactions (e.g. loans, cash-pooling), the calculation of the percentage impact of the adjustment of comparability on the change in the outcome of the transfer pricing analysis, which is extremely difficult due to the nature of the transaction. In this case, the MF stresses that taxpayers have the option to choose: It is not possible to determine the effect of the correction on the result.
In conclusion, taxpayers who consider applying comparability adjustments in the benchmarking process must face two key issues.
After first it is necessary to decide whether, in the light of the differences identified, correction is the right course of action and whether, in fact, correction leads to improved comparability and quality of analysis. In doing so, the need for reporting referred to above should also be borne in mind.
After second where a decision is taken on the appropriateness of the correction, it is appropriate to specify the technical way in which it is to be carried out appropriate to the individual terms of the transaction and the method used, without standardised solutions facilitating this task.