Capital increases and surcharges vs. TP obligations

One of the types of controlled transactions that can be carried out between related parties are capital transactions, including those involving share capital increases and surcharges. In both cases, the purpose is to recapitalize the company and finance its operations, while the effects that arise on transfer pricing grounds are different.

In the event of an increase in the company’s share capital, the funds pass to the company’s property, and the shareholders take up shares in exchange for their contributions. Surcharges, on the other hand, increase the company’s assets, but do not increase the company’s share capital or shareholding.

No transfer pricing obligation for surcharges

According to the Finance Minister’s General Interpretation on the Definition of a Controlled Transaction dated December 29, 2021, the surcharges regulated by Articles 177-179 of the Companies Act do not constitute an action of an economic nature. The company receives surcharges from shareholders who have been obligated to contribute them under the regulations of the company agreement. The regulations of the company agreement may stipulate that the surcharges are non-refundable. In addition, the partners do not receive remuneration in the form of interest on the capital provided to the company. Therefore, surcharges under the Companies Act do not constitute a controlled transaction and transfer pricing obligations do not arise for them.

Documentation obligation for share capital increase

In the case of transactions involving an increase in share capital and the acquisition of shares, tax authorities in individual interpretations and administrative courts in judgments confirm the existence of a documentation obligation for such capital transactions. The documentation threshold is adopted for the category of other controlled transaction, that amounts of PLN 2 million. Importantly, the entire contribution made is assessed, regardless of what portion is allocated to share capital and what portion is allocated to supplementary capital. It should also be borne in mind that, according to the authorities’ approach, the obligation arises at the time of making the payment for the capital increase/acquisition of shares, and not at the time of entry in the National Court Register, which can be important if the transaction is carried out at the turn of the year.

In conclusion, when identifying transfer pricing obligations, one should also keep in mind capital transactions and in what form they were carried out.

In the case of a capital increase transaction, if the contributions exceeded the PLN 2 million threshold, there will be an obligation to prepare documentation, transfer pricing analysis and TPR reporting.