“The controlled transaction” in draft of the Poland’s Ministry of Finance General Ruling for Transfer Pricing Purposes

BKuzniacki_PWC Poland

By Błażej Kuźniacki (Attorney-at-Law, Deputy Director for Strategic Tax Advice & Dispute Resolution,PwC Poland) & Katarzyna Kotowska (Senior Associate, Transfer Pricing, PwC Poland) & Piotr Niewiadomski (Tax Advisor, Director in Transfer Pricing, PwC Poland)

The definition of controlled transaction in the light of Polish Corporate Income Tax Act (CIT Act) and explanatory memorandum

According to Article 11a point 6 of the CIT Act, a controlled transaction refers to economic activity identified on the basis of actual behavior of the parties to the transaction, including allocation of income to the foreign permanent establishment (PE), where the conditions are imposed/made as a result of existing relations.

In addition, the explanatory note to the CIT Act as of 2019 (analogous to the Act from 2020) indicates that “the controlled transaction” should cover such events as TP restructurings, cost sharing agreements (CCAs), partnership agreements, collaboration agreements, or liquidity management agreements.

Such a broad and blurred definition causes serous troubles for taxpayers when it comes to proper identification of intercompany transactions that should follow TP regulations.

The definition of transaction in the light of  draft version of general ruling of Ministry of Finance and Regional Policy

General information

In order to dispel the taxpayers’ doubts, the Ministry of Finance and Regional Policy (MoPR) issued a draft version of the general ruling regarding the definition of “the controlled transaction” for the purposes of transfer pricing (henceforth  “General Ruling’s Draft” or “GRD”) and launched a public consultation in this respect. As the consultations are closed as of April 30, the final version of the GRD should be prepared hopefully any time soon. It should be treated as an additional source of information to the CIT Act.

The GRD does not include the comments on free of charge benefit and allocation of income to the foreign PE.

Conditions to be met in order to define an event as controlled transaction

Firstly, the GRD refers to the conditions that have to be met in order to define an event as a controlled transaction under the CIT Act and briefly explain how to understand them:

Economic nature of the transaction (business activity)

The activity of the taxpayer is considered as business activity, in particular if it is:

  • aimed at achieving profit;
  • conducted in an organized form / structure; and
  • conducted independently.

Actual behavior of the parties to the transaction

  • Actual behavior means action actually performed, not only described in the agreement. While verifying, the existence of an economic justification should be taken into consideration. In addition, such an activity should be neither apparent (i.e. existing only on paper) nor artificial (i.e. having no other justification than tax avoidance).
  • An analysis of the actual behavior should be performed from the perspective of each party to the transaction to determine the actual scope and nature of the transaction.

Conditions that are made or imposed as a result of relations between parties

  • The definition of relations presented in the CIT Act refers to the significant influence over the enterprise – in a nutshell, this means existence of capital relations (25% shares in the capital/ constitutive organs, etc.), personal relations (ability of a person to make key decisions concerning an enterprise) or family relations (marriage, kinship, or affinity up to the second degree).
  • To be treated as controlled, a transaction must not only be concluded between related entities, but the conditions of the transaction must be imposed/made as a result of relations as well.
  • Activity may be treated as controlled transaction irrespective of the fact whether its conditions are in line with the arm’s length principle or not.
  • An influence on the transactional conditions may also come from the entities which are not the direct parties to the transaction.

The above elements, as being of the subjective nature, may be differently assessed by the tax authorities during possible tax audit.

Internal regime of the companies vs. controlled transaction

The GRD states that actions conducted strictly based on other legal provisions –  e.g. payment of dividends under the commercial code – should not be treated, in principle, as controlled transactions.


Clarifications presented in the GRD may be useful while determining whether an event should or should not be treated as a controlled transaction. Nevertheless, there are still a few grey areas that should be investigated further and require a thorough analysis on a case by case basis. Perhaps, the final and legally binding version of the GRD will chase away those doubts.

Article on recent consultation on Polish controlled transactions

Błażej Kuźniacki is Attorney-at-Law and Deputy Director for Strategic Tax Advice & Dispute Resolution at PwC, Poland.


Katarzyna Kotowska is Senior Associate, Transfer Pricing at PwC, Poland.


Piotr Niewiadomski is Tax Advisor, Director in Transfer Pricing at PwC, Poland.