TPR as a tool for typing for tax audit

When trying to complete the TPR form, it is good to remember what the primary purpose of this reporting is. The Ministry of Finance explicitly indicates that “the purpose of TPR reporting is for the tax administration to gather selected information for the analysis of the risk of understatement of taxable income in the field of transfer pricing and other economic or statistical analyses”.

What does this mean in practice?

Well, it means that TPR forms are one of the primary typing tools for transfer pricing audits. Why? Because the Ministry has a large dataset of related party transactions, which it can compare and easily catch outlier observations. As Marta Klepacz pointed out in a post on TPR statistics for 2020-2021 (link), 17,508 TPR-C forms were filed in 2020 and as many as 19,039 in 2021.

Financial transactions were the most frequently reported transactions, followed by services transactions and those related to distribution and production. Thus, it can be concluded that the above-mentioned types of transactions are more likely to be selected due to their frequency in the sample.

Why is quality so important?

What if I am also reporting these types of transactions? You need to pay special attention to the TPR form. The basis for completing the TPR form is diligently prepared transfer pricing documentation with transfer pricing analyses. Since these documents are the basis for filling in the TPR form, it means that they are the ones that will be thoroughly verified during the tax audit.

Special attention should be paid to transfer pricing analyses, the results of which are reported in the TPR form. Special attention should be paid to transfer pricing analyses, the results of which are reported in the TPR form.

The transfer pricing analysis allows us to verify whether the terms and conditions agreed in transactions between related parties are in line with the arm’s length principle. Thus, it is the most important tool for defending the arm’s length nature of a given transaction in the event of a possible audit and, if so, we must be sure that it is of high quality.

Keep in mind deadlines, but also other important issues

The final question is: what is the deadline for submitting the TPR form? This is a mystery at the moment, due to an announcement made on 27 October by the Ministry of Finance (link: https://www.podatki.gov.pl/ceny-transferowe/zmiany-w-prawie/prace-nad-wydluzeniem-terminu-do-zlozenia-informacji-o-cenach-transferowych-tpr-p-i-tpr-c271023/).

Last Friday, the Ministry of Finance surprised everyone and announced that the Ministry is currently working on extending the deadline for filing the TPR form for 2022 by 3 months (i.e. until the end of February 2024, when the original deadline for taxpayers is 30 November this year). According to the announcement, a draft regulation on this matter is currently in internal consultation but is scheduled to be made available for external consultation this week.

Regardless of the deadline for submitting the TPR form, it is important to note that taxpayers will submit it in a different way than before. When reporting transactions for 2022:

• The TPR-C form and TPR-P form include a statement that local transfer pricing documentation has been prepared and that the prices used are arm’s length,
• the addressee of the reporting changes as well, which is the Head of the Tax Office competent for the taxpayer (not the Head of KAS as before).

Finally, we would like to draw your attention to the fact that the CIT Act narrows the group of persons who may sign the TPR form, and to effectively submit TPR, such a person should have a power of attorney to sign a declaration submitted electronically (UPL-1). Therefore, we recommend taking steps to obtain the said power of attorney as soon as possible.