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Taxpayers generally have transfer pricing obligations for transactions with related entities. However, the provisions also require them to set market prices and document transactions with entities in so-called “tax havens”.
Below we explain when taxpayers must remember these obligations and what they entail.
Direct transactions with tax havens
Under Article 11o(1) of the CIT Act / Article 23za(1) of the PIT Act:
Taxpayers and companies without legal personality that conduct a transaction other than a controlled transaction with an entity resident, registered or managed in a territory or country applying harmful tax competition must also prepare local transfer pricing documentation if the value of that transaction in the tax year, or for companies without legal personality in the financial year, exceeds PLN 100,000.
In other words, if a taxpayer conducts a transaction with a tax haven exceeding PLN 100,000 in a tax year, they must prepare TP documentation for that year – the general section and a comparability analysis. The documentation must prove that the transaction prices agreed with the entity complied with the arm's-length principle.
Besides preparing TP documentation, the transaction must be reported and a TPR-C / TPR-P form submitted. The taxpayer also submits a statement to the tax office that the documentation obligation was fulfilled and that prices agreed with the tax haven were at market level.
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Indirect transactions with tax havens
Since 2021, transfer pricing obligations also apply to taxpayers cooperating with tax havens indirectly. Under Article 11o(1a) of the CIT Act / Article 23za(1a) of the PIT Act:
Taxpayers and companies without legal personality conducting a controlled transaction or another transaction must prepare local transfer pricing documentation if the beneficial owner is resident, registered or managed in a territory or country applying harmful tax competition and the value of that transaction in the tax year, or for companies without legal personality in the financial year, exceeds PLN 500,000.
In practice, the provisions thus oblige taxpayers to check every counterparty, related or unrelated, with whom their transactions in a given year exceed PLN 0.5 million, to establish the beneficial owner of the receivable.
If our counterparty conducted such transactions with a tax haven or havens in 2021, the entity in the tax haven should be treated as the beneficial owner of amounts paid to that counterparty. This obliges us as taxpayers to prepare transfer pricing documentation.
The provisions also say that a taxpayer must presume the beneficial owner is resident, registered or managed in a tax haven if their counterparty makes settlements with a tax-haven entity in the tax year. The taxpayer must exercise due diligence in establishing these circumstances.
Taxpayers must therefore check all counterparties with whom transaction values exceeded PLN 0.5 million during the tax year to see whether they work with tax havens. Failure to meet this obligation automatically means that documentation must be prepared.
Does this concern only suppliers, or also customers?
Until the end of 2021 it was unclear whether taxpayers had to check only their suppliers or also their customers. The provisions did not make this clear, and the Minister of Finance indicated a broad interpretation in draft guidance. On 9 December 2021, general interpretation no. DCT2.8203.2.2021 was issued on the concept of a homogeneous controlled transaction. It explained that the checking obligation concerns only purchase transactions, because only such transactions create a receivable for which a beneficial owner can be identified. Thus, in indirect transactions with tax havens, the obligation concerns suppliers only, not customers.
How is the PLN 0.5 million threshold determined?
The PLN 0.5 million threshold applies to homogeneous transactions conducted during the tax year with a single counterparty (supplier). Transaction value is determined from invoices received during that year. It is worth noting that the Minister of Finance indicates in the guidance that the condition of making settlements with tax havens is met if our supplier's total settlements with tax-haven entities amount to at least PLN 0.5 million. Our supplier's tax-haven transactions below PLN 0.5 million are not covered by these provisions.
How to apply these provisions in practice?
Checking whether counterparties cooperate with tax havens may be difficult in practice. It is worth preparing in advance – a reminder that the deadline for TP documentation, TPR and the statement is 30 September 2022 (for taxpayers whose tax year coincides with the calendar year).
It is therefore recommended to analyse all suppliers with whom transaction values exceeded PLN 0.5 million in 2021, obtain statements from them concerning the beneficial owner, and implement a procedure for checking those suppliers and statements with due diligence.
List of tax havens
Finally, where can the exact list of tax havens be found? The Minister of Finance's regulation of 28 March 2019 on countries and territories applying harmful tax competition for corporate income tax contains a closed list of 26 tax-haven entities. These include the Principality of Andorra, Hong Kong, the Principality of Monaco, the Republic of Panama, the British Virgin Islands and Grenada.
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