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The absurdity of Polish TP obligations covering transactions with third parties

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Marta Klepacz of MDDP explains that the application of transfer pricing changes to third-party transactions has placed a burden on taxpayers, not least because of the difficulty in identifying the suppliers in indirect transactions.

Update to the article: Participating in public consultations pays off! Eighteen months after the regulations came into force, the Ministry of Finance repealed the provisions on indirect tax haven transactions. Importantly, the obligations have also been cancelled for 2021. However, it should be remembered that transactions carried out directly with tax havens are still subject to reporting and documentation.

Several significant Polish transfer pricing (TP) provisions came into force in 2021 and taxpayers are now feeling the impact. The provisions require the preparation of a local file and the filing of a TP-R form for transactions made indirectly with entities based in tax havens.

Previously, the obligations only concerned taxpayers who made purchase transactions directly with entities from tax haven jurisdictions.

The new obligation applies not only to transactions with related entities, but also third parties.

In the case of indirect transactions, two conditions for a transaction to be documented were defined:

  • A transaction value exceeding PLN 500,000 (circa $106,000) net; and

  • The real owner of the receivables is a tax haven-based entity.

Taxpayers are facing the new obligations regarding indirect transactions for the first time in 2022.

Verifying the suppliers

Polish taxpayers must identify all suppliers with whom the transaction value exceeds PLN 500,000 net (including third parties) and try to confirm who the real owner is of the payment made to them.

In its explanations, the Ministry of Finance clarifies how to verify suppliers (the explanations are not final at the time of writing). The taxpayer should:

  • Verify suppliers in terms of information they have in internal procedures (for example, a withholding tax procedure, a KYC procedure, an AML procedure, and a Mandatory Disclosure Rules – procedure); and

  • If the above information is unavailable, try to obtain an appropriate statement from the supplier that would name the real owner of the receivables.

If the real owner of the supplier's receivables cannot be identified in such sources, it should be verified in publicly available external sources.

This is a tall order that requires considerable administrative effort. At the same time, the aim of these provisions remains unclear.

TP obligations

If the actual owner of the receivables is a tax haven-based entity, the taxpayer must prepare TP documentation and report the transaction in the TP-R form. In such a case, the benchmarking study is not a mandatory part of the local file.

In the statement on preparing TP documentation that is filed with the tax authorities, the taxpayer must also confirm that prices established in the transaction are at arm’s length. The local file should also come with an additional part: an economic justification for the transaction; in particular, a description of the expected economic benefits, including tax benefits.


Failure to meet the documentation obligations triggers the risk of sanctions. The transaction may be estimated by tax authorities, which may apply the institution of an additional liability. However, given that the transactions are made with third parties, the risk is low.

Another significant risk is that the tax authorities recognise as false the statement filed on the preparation of TP documentation. If that is the case, the taxpayer faces a penalty of up to 720 daily rates, which equates to approximately €6 million ($6.1 million) in 2022.

The Ministry of Finance has compiled clarifications on the guidelines for meeting the additional obligations. It has also announced its intention to simplify the regulations and raise the documentation thresholds.

However, the regulations still raise doubts in terms of the obligation burden on taxpayers, which is out of proportion with the effect on the tax authorities.

The deadline for fulfilling these obligations for 2021 is the end of December 2022 for taxpayers whose calendar year matches the tax year. Experience shows that verification is a challenging task, given the understandable lack of responses and willingness to provide information from suppliers. It is therefore worth taking action as soon as possible.

Future changes

The deputy minister of finance has announced changes to corporate income tax. They seek to introduce simplifications and solutions adapted to the current economic situation.

For instance, the Ministry of Finance proposes simplified rules for the documentation of transactions with tax havens and increased documentation thresholds applicable in these cases (PLN 100,000 for direct transactions and PLN 500,000 for indirect transactions at present).

The bill will raise the thresholds twice for direct transactions; that is, to PLN 200,000. In the case of indirect transactions, they will be changed depending on the type of transaction.

On the one hand, this is good news for taxpayers. On the other hand, it comes as a big surprise after several months of efforts to meet the regulator’s requirements, such as obtaining statements from suppliers and documenting transactions with entities from tax havens.

The act is a draft and should be published within a month.

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