TP documentation obligations: more than Local File and TPR or the Master File explained

TP documentation obligations: more than Local File and TPR or the Master File explained.

For many taxpayers transfer pricing is only about compiling Local File or filling in the TPR form. From 2022, the so-called indirect tax haven transactions also trigger some obligations. There are still more questions than answers in this respect.

Our focus today is on a different document. Not all of you may be required to have it ready, but it is good to know about it. Let’s see what the Master File is about.

Master file – description and obligations

The Master File is a group transfer pricing documentation compiled to present information on the operations of a group of related entities. It is often an extensive document introducing a group comprehensively: information about its ownership structure, scope of activities, material intangible assets, financial structure or even key elements of the group’s transfer pricing policy.

The obligation to have a Master File for a given year occurs when all the conditions listed in the CIT / PIT Act are met:

• the taxpayer belongs to a group of related entities for which the consolidated financial statements are prepared,
• related entities are consolidated using the full or proportionate method,
• the value of the group’s consolidated revenues in the previous financial year exceeded PLN 200,000,000 or its equivalent,
• the taxpayer is required to prepare local file (with related entities) for a given year.

So, if you do not meet one of these conditions, the obligation to have a Master File for a given year does not apply to you.

Not always an easy task

Transfer pricing obligations (including Master File obligations) vary from country to country. It is even possible that a Polish taxpayer may be obliged to have one, unlike other foreign entities from the group. If that is the case, the Polish taxpayer must prepare the document on its own.

Master File is a group documentation, so you need data on entities belonging to the group. These are not always available on the spot, so you may need to obtain it from the group – possibly a time-consuming process that may involve additional explanations for ‘non-residents’.

An important part is that if the Master File is prepared in the group by other entities, you may use it (drawn up in English) in order to meet Polish documentation obligations. However, a document compiled this way should be verified for consistency of information presented in it and its compliance with the OECD Guidelines (Polish regulations in this area are, in principle, consistent with the Guidelines). If necessary, it should be properly ‘customized’: for example, if the document was prepared based on the individual requirements of the group. It is also possible that the authorities will ask for a Polish translation of the document.

When identifying the obligation to prepare a Master File in a multi-level group, you may encounter some doubts as to the level of consolidation from which revenues should be referred to the statutory limit.

What about the tax havens?

The obligation to prepare Master File documentation should not apply to transactions made with third parties. Thus, if the tax haven documentation relates to transactions with third parties (and these are the only transactions documented by the taxpayer in a given year), the obligation to prepare a Master File will not be identified.

Why now?

We all know the obligations regarding transfer pricing for 2021 have been postponed. This also applies to having a Master File. According to the ‘standard’ regulations, taxpayers have until the end of the twelfth month after the end of the tax year to prepare group documentation. For 2021, this date has been postponed by another 3 months.

This means that for taxpayers whose tax year is aligned with the calendar year, the deadline for compiling the Master File for 2021 will expire only at the end of March 2023.

However, is the word ‘only’ correct? The deadline may be distant yet – as we wrote – collecting information from the group and analyzing it may be time-consuming. And if you already know that you will ‘receive’ the document from the group entities, don’t forget you need to carefully verify it in terms of the consistency and reality of the information presented in it (e.g. functional profiles, transfer pricing methods, etc.). It all requires time. Therefore, we encourage you to check your Master File obligations and possibly start works in this area.