Revolutionary changes in transfer pricing regulations entered into force since 1st January 2019
Since 1st January 2019 new transfer pricing regulations entered into force in the Polish Corporate Income Tax and Personal Income Tax Act.
The main purpose of introduced changes is to simplify existing regulations, adjust them to changing legal and economic environment and adopt to OECD guidelines in respect to transfer pricing.
The most important changes are presented below.
Types of relations – wider definition
New regulations extend the catalogue of capital relations (e.g. with shares in voting rights, shares in the rights related to participation in profits or assets, etc.) and personal relationships (the key factor is disposing of a significant impact on company’s economic decisions). In this respect it is recommended to re-identify the types of existing relations in accordance with the new regime.
New TP documentation thresholds
The new thresholds which determine the obligation to prepare transfer pricing documentation have changed and are presented below:
- PLN 10 mio in case of financial and commodity transactions,
- PLN 2 mio in case of services and other transactions.
New regulations allow the taxpayers to choose the legal regime under which transfer pricing documentation for FY 2018 will be prepared. The taxpayers can choose, for FY 2018, whether the transfer pricing documentation should be prepared in accordance with previously binding regulations or in accordance with new regulations. Such a choice should be thoroughly analysed, as it could affect i.e. the number of preparing transfer pricing documentations and benchmarking analyses.
New elements of Local File, Master File documentation and benchmarking analysis
The elements that should be included in the local transfer pricing documentation (Local File), benchmarking analysis and group transfer pricing documentation (Master File) have been clarified and supplemented.
Obligation to prepare benchmarking analyses (so-called transfer pricing analyzes)
In accordance with the new regulations, the taxpayers obliged to prepare Local File will be also required to conduct benchmarking study for each documented transaction, in order to prove the arm’s length character of the controlled transaction.
Master File documentation
The Master File documentation will be mandatory only for entities covered by the consolidated financial statements and the amount of consolidated revenues exceeds PLN 200 mio (for previous tax year).
Safe harbours
The tax authorities will be able to waive from verifying the arm’s length level of loans’ interests and the mark-up on costs for low value added services provided that specific conditions will be fulfilled.
Exemptions from TP documentation obligations
Some exemptions from the obligation to prepare local transfer pricing documentation have been introduced for i.e. (i) transactions concluded between domestic entities (under certain conditions), (ii) transactions concluded between companies belonging to the tax capital group (formed for corporate income tax purposes), (iii) transactions concluded between entities related by the State Treasury or local government units, and (iv) transactions in which the price was determined in an open tender procedure.
Recharacterization and non-recognition of the transaction
The new regulations allow the tax authorities to recharacterize or non-recognize the tax consequences of controlled transaction, if the tax authorities consider that under the same circumstances, reasonable unrelated parties would not have concluded such transaction or would have concluded other than the controlled transaction.
Business restructuring
The necessity of examination the conditions of restructuring process from the perspective of transfer pricing has been emphasized in the new transfer pricing regulations. In accordance to the new regulations, the justification behind the restructuring process, as well as the need to pay a restructuring fee (so-called exit fee) should be analysed.
TP Adjustments
Under certain conditions the new regulations give the possibility of tax treatment of TP adjustments.
Implementation of so-called “Information about transfer pricing” (TP-R)
For FY2019, the taxpayers will be obliged to submit a new form called Information about transfer pricing, which will replace the current CIT-TP / PIT-TP form. New form will present, in addition to data on detailed information on controlled transactions, information on the applied transfer pricing methods and the level of profitability of transactions in comparison to the results from conducted benchmarking analysis.
Statement that TP documentation is prepared
In addition, the wording of the taxpayers’ statement will change. The taxpayers will be obliged also to confirm that the transfer prices have been set at the market level apart from the statement that the TP documentation is prepared.
Transfer pricing sanctions
Since 1st January 2019, sanctions for non-submission of the tax statement and non-submission, late submission or submission of false TP-R form have been tightened. The value of sanction is up to 720 of daily rates.
The previously binding sanction rate of 50% will be replaced with three new sanction rates in the form of an additional tax liability at the level of 10%, 20% and 30%, under specified conditions.
The new regulations include many key changes that should be analysed carefully.
If you identify the need for our support in the field of new regulations, please contact us.