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Taxpayers transacting with related entities face annual reporting obligations to prepare transfer pricing documentation and file TPR transfer pricing information. This article explains when and how to prepare TP documentation.
Documentation thresholds
Entering into controlled transactions with related parties does not automatically require local transfer pricing documentation. Such documentation is needed if the transaction exceeds the documentation thresholds under Article 11k(2) of the CIT Act:
- PLN 10,000,000 for a goods transaction;
- PLN 10,000,000 for a financial transaction;
- PLN 2,000,000 for a service transaction;
- PLN 2,000,000 for another transaction not listed in points a–c.
Additionally, taxpayers conducting direct transactions with tax havens worth more than PLN 100,000 in a tax year, or indirect transactions with an annual value above PLN 500,000, must prepare transfer pricing documentation.
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What local transfer pricing documentation contains
Regulations require taxpayers to prepare local documentation containing all the elements specified in the CIT Act. Omitting any one risks the tax authority finding that the documentation does not meet formal requirements and, in an extreme case, treating the taxpayer as having none.
It is therefore vital to include all required information. Under Article 11q(1) of the CIT Act, this is:
- a description of the related entity;
- a description of the transaction, including an analysis of functions, risks and assets;
- a transfer pricing analysis, including:
- an analysis of data for unrelated entities or transactions with or between unrelated entities considered comparable to the controlled transaction, called a “comparability analysis”; or
- a “compliance analysis” if a comparability analysis is inappropriate for the transfer pricing verification method or impossible with due diligence, demonstrating that the controlled transaction's terms match those unrelated entities would have set, hereafter called
- financial information.
The Minister of Finance's regulation of 21 December 2018 on corporate-income-tax transfer pricing documentation specifies in detail what documentation must include for those points.
What group transfer pricing documentation contains
Taxpayers in corporate groups have another duty: preparing group transfer pricing documentation. Related entities whose financial statements are fully or proportionately consolidated and which must prepare local documentation attach group documentation if they belong to a group of related entities:
- for which consolidated financial statements are prepared;
- whose consolidated revenue exceeded PLN 200,000,000 or the equivalent in the previous financial year.
Group transfer pricing documentation should include information about the corporate group within Article 3(1)(44) of the Accounting Act, in particular:
- a description of the group;
- its significant intangible assets and rights;
- its material financial transactions;
- its financial and tax information.
As with local documentation, the Minister of Finance's regulation details what each point must contain.
Exemption from preparing transfer pricing documentation
In certain situations taxpayers can use an exemption, whose conditions are in Article 11n of the CIT Act.
For example, Polish taxpayers conducting controlled transactions exclusively with related parties resident, registered or managed in Poland in the tax year may be exempt, if both taxpayer and related party meet these conditions:
- neither uses a CIT entity-level exemption;
- neither uses an income-tax exemption based on a decision supporting new investments;
- neither incurred a tax loss.
Taxpayers with an advance pricing agreement, investment agreement or tax agreement also need not prepare TP documentation for the period covered by it.
If you found this article interesting, explore our tax advisory services and read how we can help you:
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Summary
In summary, transfer pricing documentation is a substantial document that must contain many elements. Missing legally required data creates tax risk and exposes management to liability. Given its complexity, it is worth starting early or entrusting the work to specialists.
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