By Marcin Jamroży (Associate Professor, Warsaw School of Economics, and Partner, Rödl & Partner, Poland)
Poland’s Finance Ministry recently published a draft tax Bill to implement key changes to the country’s transfer pricing documentation rules. The draft Bill is aimed at simplifying Poland’s transfer pricing regulations and lowering the bureaucratic and administrative burden for enterprises. The philosophy of a simple, transparent, and friendly tax system should be written into the law. At the same time, it is underlined that the draft Bill should be sealed against loopholes and incorporate the new OECD recommendations. The new regulation is proposed to be effective from January 1, 2019.
The draft bill would provide a new, separate chapter dedicated to transfer pricing in both corporate income tax and personal income tax Acts. Simultaneously, new key legal definitions would be introduced to limit potential misinterpretations, such as the definition of a “controlled transaction.”
Increase in threshold
Among the proposals is an increase in thresholds for controlled transactions covered by transfer pricing local documentation. Depending on the kind of transaction the threshold is PLN2m (for transactions such as the purchase or sell of intangibles or services, the lease of fixed assets etc.) or PLN10m (for transactions such as purchase or sell of tangibles, debt financing, guarantees etc.). However, the size of enterprise (party to the transaction) will no longer be relevant. Only the value of controlled transactions will determine the obligation to prepare the local transfer pricing documentation.
Requirement of “master files”
Polish taxpayers, who are members of a group of related entities, need to have the “master file” documentation where the consolidated financial statement is being prepared and where the consolidated revenues exceed PLN200m in the previous year. The new regulation allows for the preparation of the “master file” by another group entity, and in English. However, the tax authorities may request a Polish version, which must be submitted within 30 days from the date of request. As a result, taxpayers will no longer be obliged to prepare the “master file” locally.
The individual elements of “local” and “master” files would slightly change to meet the OECD standards. An important change is the widening of transfer pricing methods, including valuation techniques, in addition to three standard transfer pricing methods and two profit transfer pricing methods allowed currently under the Polish law.
Change in deadlines
Deadlines for filing the local transfer pricing documentation will be extended by nine months, from the current three months; and by 12 months from tax year-end for filing the “master” file. It is to be noted that the entities preparing both “master” file and country-by-country report are obliged to provide the Head of National Tax Administration with the files by the end of the 12th month following the end of the tax year.
Transfer pricing forms such as CIT-TP and PIT-TP could be sent in electronic form.
Safe harbors and transfer pricing adjustments
At the same time, simplified settlements rules such as safe harbors for transactions related to loans and low value-added services would be introduced. Taxpayers who use safe harbors would need to obtain recognition of the transfer price as being at arm’s length. However, a few restrictive conditions limiting the use of safe harbors could be taken into consideration.
New regulations state that the transfer pricing adjustments could constitute taxable revenues or tax-deductible costs and should be recognized in the year to which they apply. However, a few restrictive conditions limiting the use of year-end adjustments could be applied.