In the home stretch for transfer pricing – the Master File

Some taxpayers currently compiling Local Files and TP-R forms for 2021 will not complete their struggle with transfer pricing on 31 December 31 (if their tax year matches the calendar year). They will face additional obligations related to Master File for 2021.

What is Master File?

The Master File is (shortly) an integral part of the transfer pricing documentation. It introduces a bird’s eye view of the activities of the entire group of related entities in a given year. Most often, the documentation is prepared by the parent entity in the group. However, it may happen that the parent entity is not obliged to prepare the Master File in its jurisdiction, while the Polish taxpayer must have it.

The Master File, in accordance with Polish regulations, contains among others:

• description of the group’s operations, the structure of relations,
• description of significant actions and internal policies regarding intangible assets,
• description of financing used in the group – not only intra-group financing, but also external financing from third parties,
• information regarding advance pricing agreements (APAs) made or other tax rulings,
• annual consolidated group financial statements.

Specific items to be included in the Master File are described in the regulations, which from 2019 are much more closely aligned with the requirements of the OECD Guidelines than those from 2017-2018. This is why the Master File received by Polish taxpayers from parent entities in their groups is in most cases compliant with Polish regulations.

Unfortunately, this is not always the case, so it is worth verifying your Master File every year for compliance with formal obligations.

Who is obliged?

The obligation to attach the Master File to the Local File applies to entities:

• included in the consolidated financial statements, and
• belonging to a group whose annual consolidated revenues in the previous year exceeded PLN 200 million.

The revenues should be converted into PLN at the average exchange rate announced by the National Bank of Poland on the last working day of the year preceding the year for which the Master File is required.

In practice, this means that the obligation to have a Master File for 2021 applies to entities belonging to capital groups whose total consolidated revenues for 2020 exceeded the equivalent of PLN 200 million.

What about the deadlines?

Due to extended deadlines for preparing Local File and filing the TP-R form for 2021 by 3 months, i.e. until 31 December 2022, the deadline for compiling Master File was postponed accordingly.

The new deadline for taxpayers to have the Master File for 2021 was set at 3 months after the deadline for filing the statement on having prepared the Local File. For taxpayers whose tax year matches the calendar year, this deadline is 31 March 2023.

Potential risks when verifying the Master File

Unfortunately, it is not the best idea for a Polish taxpayer to accept Master File from a group entity without any additional verification. This is not only because of the formal requirements already mentioned, but also because the information contained in the Master File may often be inconsistent or directly contradict the information introduced in the taxpayer’s Local File.

Therefore, taxpayers should verify their Master Files thoroughly for compliance with the Local File and TPR. If discrepancies are revealed in some aspects (e.g. the role of entities in the group, descriptions of transactions related to intangible assets, financing), the facts of the case should be established and the descriptions made consistent.

Another important matter is the possible inspection during which authorities will ask to file transfer pricing documentation within 14 days. Taxpayers required to have a Master File should then submit it to the authorities together with the Local File. If the Master File is then missing, there is a risk that authorities will consider documentation incomplete.

Therefore, do not wait too long with compiling or obtaining the Master File. Instead, have it verified already at the stage of preparing Local File, so that it does not require amendments later.

We are ready to support you in preparing Local File as well as compiling Master File or verifying the one you have received.