Atypical transactions – risks of tax and fiscal penal sanctions

For years, financial, service, and distribution or production transactions have consistently been the most commonly reported in the TPR form. This is largely because they are easy to identify as subject to transfer pricing regulations. However, in a complex and rapidly evolving business environment, companies often engage in transactions that do not fit neatly into standard classifications, have an atypical nature, or are not traditionally linked to transfer pricing. It is essential to pay close attention to such transactions, as failing to report them could expose company directors to tax and fiscal penalties.

What are atypical transactions?

Atypical transactions are business operations that do not easily fit into standard classifications. While they are often not commonly linked to transfer pricing obligations, failing to report them can lead to tax and fiscal penalties.

What risks do atypical transactions entail?

Atypical transactions can have serious financial and legal consequences. Failure to properly identify and report them may result in tax and fiscal penalties for both the company and its directors. Therefore, a thorough analysis of these transactions and the implementation of effective control procedures are essential.

Examples of atypical transactions

1. Transactions with entities in tax havens. One common scenario involves transactions with contractors based in tax havens, such as purchasing goods from Hong Kong. Even if these transactions are conducted with unrelated entities, they are subject to documentation and reporting obligations if they exceed specific thresholds: PLN 500,000 for goods transactions and PLN 2,500,000 for financial transactions.

1. Transactions related to corporate restructuring. Intra-group restructurings, such as the transfer of clients, employees, or functions, may be subject to transfer pricing regulations. For example, if one entity within a group takes over another’s operational activities—assuming its clients and liabilities—it may be necessary to assess the remuneration for the transferred assets and functions.

Capital operations carried out under corporate law, such as share capital increases, mergers, and demergers, also present challenges in transfer pricing analysis and reporting. Proper assessment of their tax implications and the risks associated with incorrect classification is crucial.

3. Joint venture agreements. Collaborative arrangements—such as consortia, partnerships, or joint ventures between related entities—require careful transfer pricing analysis. These models are common in industries like construction, banking, and film production. Since profit allocation in such ventures may deviate from market-based remuneration structures, a thorough economic assessment is essential.

Incorrect classification or inadequate documentation could lead tax authorities to challenge the recognition of tax-deductible costs or the chosen revenue allocation method. Another key consideration is whether the joint venture results in concealed profit distribution, which could trigger additional tax sanctions.

1. Transactions without remuneration. A common example is a parent company providing guarantees or sureties to related entities free of charge. Even without remuneration, such transactions may still fall under transfer pricing obligations and require proper documentation and analysis.
2. Rebilling of costs. Rebilling expenses between related entities—such as rent, utilities, or property maintenance—is often overlooked as a transfer pricing issue. However, every rebilling qualifies as a transaction and may trigger documentation obligations
3. Transactions with individuals. Transactions involving specific individuals, such as board or supervisory board members, may be classified as controlled transactions. Loan agreements or service provisions by these individuals require transfer pricing analysis. This is particularly important, as individuals often do not realize they are engaging in controlled transactions, viewing themselves solely in their corporate role. However, in such cases, the parties involved are separate entities—the individual and the company.

What are the fiscal penal sanctions for non-reporting of atypical transactions?

Improper reporting of atypical transactions can lead to fiscal penalties. Directors may be held liable under fiscal penal law for failing to provide the required documentation or for inaccurate reporting.

What tax sanctions are associated with atypical transactions?

Failure to report atypical transactions can result in tax sanctions, including additional tax liabilities and interest for late payments. Tax authorities may also challenge the market nature of the prices applied in these transactions, leading to tax adjustments. In extreme cases, authorities may invoke the General Anti-Avoidance Rule (GAAR), which could lead to further financial consequences.

How to avoid sanctions related to atypical transactions?

To mitigate the risk of tax and fiscal penal sanctions, businesses should:

• Implement internal procedures for identifying atypical transactions,
• Conduct ongoing analysis of business operations,
• Consult transfer pricing experts,
• Regularly train employees on reporting obligations.

By adopting a proactive approach, companies can minimize the risk of sanctions and ensure compliance with applicable tax regulations.