Poland: New TP regulations on the way

Magdalena Marciniak

In recent months the focus on transfer pricing as an area of fiscal policy has intensified, and legislative changes are on the way. There is an increased interest in TP issues, fueled primarily by declining budget revenues from income tax and the recent increase in the number of income taxpayers.

In a December 2015 announcement, the Ministry of Finance stated that the transfer pricing survey was its priority for the coming years. Tax authorities seek to examine whether the reason for non-payment of taxes is "a structure designed to reduce the tax base in Poland to zero" and take a keen interest in taxpayers applying incorrect transfer prices and developing aggressive optimisation structures.

The Ministry announced intensive audits focused on large companies and the prices applied in related party transactions. To this end, the Ministry will be hiring specialists and deepening their knowledge of the use of transactions between related entities with regard to tax avoidance.

In order to boost audit effectiveness and prevent profit shifting, as a consequence of OECD and G20 work in the area (primarily through the BEPS Project) Poland introduced new transfer pricing regulations. Significant changes to transfer pricing documentation will enter into force on January 1 2017, while new rules regarding country-by-country (CbC) reporting are already valid since the beginning of this year.

New regulations (which will come into force next year) release taxpayers with revenues or costs below €2 million ($2.2 million) from the obligation to prepare transfer pricing documentation (except for transactions with tax havens) while documentation requirements are being stepped up for other taxpayers. A taxpayer will be obliged to provide more detailed descriptions of their activity and more detailed financial information. The scope of transfer pricing documentation will be extended and it will consist of a master file (that is, a description of the group, prepared by the parent company) and a local file (that is, a domestic documentation including, among others, a description of the taxpayer, the transactions executed, the financial data involved, the method used and the source of documents).

New regulations also impose entirely new requirements on taxpayers. The local file should additionally contain (if taxpayer's revenues or costs exceed €10 million) a benchmarking study covering Polish comparable data (if available). Additionally, under the new regulations a statement is necessary to confirm the preparation of a complete documentation within the statutory deadline and this must be signed by a member of the management board of the local entity.

The significantly increased scope of transfer pricing documentation means it must be compiled on a current continuous basis and the benchmarking obligation may trigger the need to hire external advisers.

Furthermore, the new rules introduce a CIT-TP form: another audit tool the tax authorities will use to analyse risk and select companies for audit. CIT-TP must be attached to the annual tax return and will include information concerning the taxpayer (for example, the sector of operations, the functional profile, types of related-party transactions and transaction values).

Poland is also a signatory of the multilateral competent authority agreement (MCAA) for the automatic exchange of CbC reports (signed on January 27 2016 by 31 countries). Under this agreement, tax administrations will exchange information relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the multinational group. The first exchange of CbC reports will start during 2018 and will cover 2016 accounts.

Magdalena Marciniak (magdalena.marciniak@mddp.pl)
MDDP, Poland
Tel: +48 (22) 322 68 88
Website: www.mddp.pl

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