Draft new regulations on advance pricing agreements finally revealed

As announced, the Ministry of Finance revealed, delayed by almost a year, draft Act on the settlement of double taxation disputes and Advance Pricing Agreements [the Act].

The following highlights the main assumptions of the simplified Advance Pricing Agreements [sAPA] introduced and key significant changes in standard Advance Pricing Agreements [APA].

sAPA vs Article 15e of the CIT Act

Under the draft Act limits on tax deductibility of expenses for intangible assets and services do not apply to transactions covered by sAPA and APA. The Article 15e-imposed limit does not apply to the tax year in which the application for APA / sAPA was filed, and, importantly, to the tax year preceding this tax year, with the exception of APA / sAPA for which the decision will expire.

Thus, taxpayers who file an APA / sAPA application by the end of 2019 may secure that certain services and license fees are out of limit on tax deductibility also for 2018 (regardless of the actual date of an APA / sAPA decision).

sAPA – main assumptions

Transactions covered by sAPA

sAPA will be issued only for transactions concerning:

• purchase of low value-added services (within the meaning of Article 11f paragraph 2 of the CIT Act), and
• trademarks or know-how fees.

Importantly, an sAPA decision cannot be issued for transactions ended before the application filing date.

Entity criterion

sAPA will not be issued for entities in which the share of tax incomes in revenues, in at least two of the last three tax years ended is lower than 1%.

Moreover, the share above 1% must be maintained in the first two years of the period for which uAPA was issued.

Formal issues

• The draft Act specifies obligatory items of sAPA,
• The term of sAPA cannot be longer than 3 tax years. Similarly to APA, sAPA can be renewed for subsequent periods (assuming no significant changes in the scope of sAPA elements);
• Proceedings in the case of sAPA should be ended no later than within 3 months after they are launched;
• The fee for the sAPA application is PLN 20,000.

APA – the most important changes in comparison to current regulations

• A foreign entity may file an APA application if it intends to start operations in Poland through a domestic related entity;
• APA application may be filed by taxpayers for transactions being the subject of a tax inspection, if the tax inspection does not cover any of the applicant’s last two tax years;
• The items which APA should contain have not been changed significantly. Only the terminology was changed in order to align it with the notions used in the current CIT / PIT Act. However, the applicant will be obliged to provide a copy of the APA application in an editable electronic form;
• APA can cover period starting from the beginning of the applicant’s tax year in which APA application was submitted (under current regulations APA period cannot cover period from before the application filing date). Additionally, the deadline for submitting an APA renewal application has been removed and a deadline has been introduced before which the application for renewal cannot be submitted.

Transformation of APA to sAPA and of sAPA to APA

The draft Act allows for transforming APA into sAPA and sAPA into APA.

It may only be a draft Act (the planned entry into force of the regulations is July 1, 2019), yet it is worth going through the solutions proposed already now, especially in the context of Article 15e of the CIT Act.

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