What transfer pricing exemptions are available for 2022?

Over the past few years, tax regulations on transfer pricing have been significantly amended at least several times. A number of transfer pricing exemptions have also evolved with the emergence of new obligations. The following is a practical summary of exemptions available for 2022 transactions.

Domestic exemption

The obligation to prepare local file does not apply to controlled domestic transactions if related parties meet all of these conditions:

• they are not exempted entities,
• they do not enjoy exemption from taxation of income derived from special economic zone activities and specified in the decision on support,
• they have not reported a tax loss.

In the case of the domestic exemption, there are, unfortunately, often doubts about (i) how to approach the tax loss condition (i.e. the loss from the source of revenue in which the transaction is included or the loss from the entire operations) and (ii) when related parties actually benefit from the exemption from taxation of income derived from SEZ business.

Safe harbor – financial transactions and low value-added services

If you make financial transactions (loans, credits or bonds), you can opt for the exemption from the obligation to prepare local file and benchmarking analysis under these conditions:

• interest rate in the transaction is determined based on the base interest rate and the margin specified in the announcement of the Ministry of Finance (for 2022, it is a maximum of 2.8% for the borrower and a minimum of 2.0% for the lender),
• no fees other than interest will be paid, e.g. commissions or bonuses,
• the loan was granted for a period of no more than 5 years,
• the level of liabilities during the year does not exceed PLN 20 million,
• the lender is not a tax haven entity.

In the case of transactions constituting low value-added services, you may benefit from the exemption from the obligation to prepare local file and benchmarking analysis under the following conditions:

• the cost mark-up is no more than 5% for the purchase of services and no less than 5% for the provision of services,
• the service provider is not a tax haven entity,
• the service provider has a calculation covering the type and amount of costs, how and why allocation keys were selected, and an analysis of functions, assets and risks.

This exemption may be difficult to apply due to additional conditions: the services must not be the core business, but should only be of a supporting nature. The value of these services must not exceed 2% of the value of services provided to related entities and third parties, and they must not be subject to resale. Therefore, it is not always possible to take advantage of it.

Note that up to and including 2021, the exemption applied only to benchmarking analysis, while from 2022, the preparation of local file is also exempted.

Recharge transaction

Another exemption from documentation obligations applies to the so-called ‘pass-through costs’. A transaction is eligible when these conditions are met:

• no added value may be created and no mark-up or profit margin is added,
• the settlement is not related to another controlled transaction,
• the settlement must be immediately after the payment to the third party has been made,
• the related party must not be domiciled, resident or headquartered in a tax haven, and
• if an allocation key is used, the related party must have an appropriate calculation.

In this case, despite having applied the exemption, the service recipient must prepare and have a calculation containing a description of the transaction (including an analysis of functions, risks and assets), so must basically have parts of a local file in place.

Exemption for micro and small businesses

Local file of related entities with micro or small business status may not include a benchmarking analysis. As a reminder: a micro or a small business is an entity that in at least one of the last two fiscal years jointly meets these conditions:

• it has less than 10 or 50 employees, respectively,
• its annual net turnover does not exceed EUR 2 or EUR 10 million, respectively, or the total assets of its balance sheet do not exceed EUR 2 or EUR 10 million, respectively.

Note that this exemption does not prevent tax authorities from verify the arm’s length nature of the transaction.

Tax haven transactions

Local file must be prepared for transactions with a tax haven entity whose value exceeds PLN 2.5 million for a financial transaction and PLN 0.5 million for other transactions. However, these transactions are not covered by the obligation to prepare a benchmarking analysis since they are not a controlled transaction between related parties.

Other exemptions

The obligation to prepare local file also does not apply to controlled transactions:

• between companies that make up a PGK (tax capital group),
• covered by an advance pricing agreement (APA) or an investment agreement,
• between entities whose ties are solely with the State Treasury or local government units or their associations,
• when the price has been set based on the Public Procurement Law,
• involving the attribution of income to a foreign permanent establishment located in the territory of the Republic of Poland, if the provisions of international agreements provide that such income may be taxed only in a country other than the Republic of Poland,
• between a group of agricultural producers or a group of fruit and vegetable producers,
• whose value does not constitute income or tax-deductible costs (excluding financial, capital and investment transactions, tangible or intangible assets).

Clearly there are a number of less popular exemptions yet their availability is limited by a number of eligibility conditions. Actually, few taxpayers can take advantage of them.

How to use an exemption?

Before using a particular transfer pricing exemption, you must first of all make sure that it safely available to you. Often times a number of additional questions and doubts arise once you start analysis an exemption. The answers are not easy to find despite numerous studies released by tax authorities and individual interpretations they issued. Also, in most cases, despite having used an exemption, a TPR form must still be filed for transactions enjoying the exemption. Any doubts are best resolved by contacting one of MDDP’s experts, who will be happy to support you on the issue of TP exemptions.