Benchmarking studies – do Polish tax authorities accept group analysis?

Benchmarking studies are a well-known topic in most tax jurisdictions. Just like anything else in life, there is no common understanding of how it should ultimately look.

One cannot ignore differences between individual legal regimes where various security instruments are applied on the basis of TP.

These differences may become problematic when compiling a ‘universal analysis’ that will meet the legal requirements of each country.

An example: in Poland, a benchmarking study is a mandatory element of a local file for all transactions subject to statutory TP obligations. This is the first and main difference between Polish regulations and most other jurisdictions. Therefore, even if benchmarks are prepared at the group level, they will likely only cover the main (and not all) transactions.

Another important aspect is when international capital groups prepare top-down and then share a universal benchmarking study with all subsidiaries. Their aim is to unify the TP policy in a given group, but also to reduce expenses incurred by individual entities (a single top-down analysis is prepared instead of several). Polish taxpayers often receive benchmarking studies from the group.

So, can they be used safely? How do Polish tax authorities approach the matter?

If an entity decides to use a group-prepared benchmarking study, it should be familiar with its specifics, identify possible threats and pay special attention to address them.

First, these documents are far more general than those that are developed individually for specific transactions between specific entities. In addition, the selected comparability criteria are often not adapted to the characteristics of a transaction featuring a Polish entity.

Requirements are also imposed by Polish tax authorities. One of the assumptions is that the benchmarking study strategy must consider the Polish market. Often, when a transaction is related to revenues of a Polish entity, e.g., a service provider, the authorities want to verify the local market.

The authorities are also eager to scrutinise the universal analysis that covers several or a dozen types of transactions where a similar number of entities is involved that are often based in different countries.

Moreover, Polish regulations clearly specify the elements to be included in the benchmarking studies report. Check carefully whether the group analysis contains all of them.

It is perfectly understandable that a capital group has a global perspective on such problems and wants its services or products to be used as comprehensively as possible. However, the fact is that economic conditions in the country where the entity operates are crucial for achieving the most adequate financial data. So, preparing global benchmarks for domestic operations involves a certain risk (an excellent example may be the inflation differences between individual countries, even in the EU itself where inflation reaches 20% in Poland, and only a few percent in other countries). Therefore, a single analysis cannot justify the profitability of entities operating in two different economic realities.

In turn, when inspecting business entities regarding TP, Polish tax authorities focus mainly on benchmarking studies and the results that have been established.

Finally, taxpayers must be aware that benchmarking studies in Poland also serve as the basis for completing the TPR form. It is used to report information such as:

• Applied criteria;
• Results from the benchmarking study;
• Level of profitability or other indicators achieved in the tested transaction; and
• Applied statistical measures – experience shows that group studies often feature ranges calculated with the use of different statistical measures and it is not clear which one is recognised as ‘arm’s length’.

To sum up, group benchmarking studies are naturally acceptable, but taxpayers must not ignore the specificity of Polish regulations. They must also be aware that the benchmarking studies are among documents the most frequently challenged during tax audits. Additional explanations may be necessary, for which taxpayers should be well prepared in advance.