What happens if you fail to meet transfer pricing obligations for 2021? Changes starting from 2022.

Sanctions for failure to comply with TP documentation and reporting obligations for 2021 may prove severe: for both the company and the individuals responsible for running it (board members). Failure to meet transfer pricing obligations or statutory deadlines triggers liability under the Fiscal Penal Code and the Tax Ordinance.

Fiscal Penal liability

Sanctions for failure to comply with the obligations to prepare local and master file may involve financial penalties of up to PLN 29 million. In this respect the liability is borne by individuals responsible for the company’s affairs and the company as a taxpayer who:

• did not prepare local file,
• prepared documentation that is inaccurate,
• did not file the TP-R form,
• reported data inconsistent with the transfer pricing documentation or inaccurate when filing the TP-R form,
• did not file a statement on having prepared local file,
• reported inaccurate information when filing the statement.

On the other hand, missing the deadline for meeting the obligations – both in the case of filing the TP-R form or preparing documentation – triggers a lower penalty: up to approximately PLN 9.5 million.

Tax consequences

Failure to comply with the documentation obligations also results in an additional tax liability. It may be imposed when the authorities decide that the prices the taxpayer used in intragroup transactions are not arm’s length.

There are three penalty tax rates imposed for applying non-arm’s length transaction conditions:

• 10% of the incorrectly reported amount or overstated tax loss and undocumented taxable income in whole or in part,
• 20%, if the basis for determining the additional tax liability exceeds PLN 15 million or the documentation has been filed after the deadline,
• 30%, if the basis for determining the additional tax liability exceeds PLN 15 million and at the same time the documentation has been filed after the deadline.

However, it is the tax authority’s responsibility to prove irregularities or that the taxpayer has applied prices that are not arm’s length.

Changes in 2022

Changes introduced by the Polish Deal involved a simplification whereby the statement was combined with information on transfer prices (from 1 January 2022). As a result, the liability of the members of the Management Board for the statement on the arm’s length nature of the prices was excluded. However, despite favorable changes, a decision was taken to extend the scope of penal and fiscal liability. Compared to the regulations in force in 2021, taxpayers will also face sanctions if group file is not attached to the local one. Furthermore, the group of individuals who may be subject to penal and fiscal liability has been extended to persons who were responsible for preparing transfer pricing documentation. Therefore, on top of a board member, the liability may now be faced by, for instance, a financial director.

What to do if you failed to meet your transfer pricing obligations on time?

If a taxpayer failed to file transfer pricing information and/or a statement on having prepared transfer pricing documentation within the deadline, it may still avoid penalty – by filing the so-called voluntary disclosure. It is meant to notify the tax authority of committing a given prohibited act (in this case: failure to submit information on transfer pricing and the statement on time). At the same time, upon submitting the voluntary disclosure, the taxpayer should remove the effects of the infringement as soon as possible, i.e. file the TP-R information and the statement.

We believe it is worth verifying the status of your transfer pricing obligations for 2021 and for previous years since these may still be inspected by tax authorities for a few more years. If any deficiencies are identified as early as possible at the beginning of the year, you can take immediate steps to avoid high fines. If you need support in this area, please contact us.