New regulations and guidance
Amendments introduced to transfer pricing regulations on 1 January 2021 expand the documentation requirements for transactions with tax haven-based entities. The objective of these new regulations is to provide measures for combating unfair tax competition using entities located in tax havens.
In respect of direct transactions with tax-haven based entities, documentation should be prepared both for sales and purchases amounting to over PLN 100,000 (until the end of 2020, only purchases qualified).
Furthermore, the regulations impose a documentation obligation for transactions with tax haven-based “beneficial owners”, if the value of the transaction exceeds PLN 500,000. In the event that a taxpayer transacts with a counterparty which has any type of settlements with a tax haven-based entity, it is considered that the beneficial owner of the taxpayer’s transaction with the counterparty is this tax haven-based entity. This applies both to related and unrelated counterparties.
The new regulations provoked a lot of controversy and concerns amongst taxpayers. In March 2021, the Polish Ministry of Finance released for public consultations its draft guidance specifying how to determine whether the beneficial owner is not a tax haven-based entity. According to the Polish Ministry of Finance, the way to do so is to obtain a statement from the counterparty that it had no settlements with a tax haven-based entity during the taxpayer’s fiscal year.
In addition, in transactions with related counterparties, the taxpayer should verify the accuracy of said statement by requesting the given related party’s transfer pricing documentation (Local File, Master File), the CbCR or other documents, such as financial statements with statutory auditor’s opinion and report, ownership structure, opinion issued by certified accountant, legal counsellor or the tax advisor.
If the taxpayer determines, with due diligence, that its counterparty had no settlements with a tax haven-based entity, it will not be required to prepare a local file for this transaction.
Taxpayers’ reaction
The draft guidance caused a fierce reaction and massive criticism. In the opinion of taxpayers and tax advisers, the only effect of the discussed regulations and guidance will be the imposition of an unreasonable administrative burden. During public consultations, taxpayers, through the Transfer Pricing Forum, industry associations and bilateral commercial chambers, advocated for postponement, suspension or even withdrawal of these new regulations as being pointless and leading to an excessive effort on the taxpayers’ side.
Practical impact
If the interpretation of the law presented in the draft guidelines is sustained in the final paper, taxpayers, after closing their 2021 books, will be obliged to obtain statements from their counterparties with whom they concluded transactions exceeding PLN 500,000, stating that these counterparties had no settlements with tax haven-based entities during the taxpayer’s fiscal year.
Furthermore, Polish members of MNEs will be required to collect additional documents from their related parties, e.g. Local Files and CbCR, to verify these statements.
Other members of capital groups should thus be prepared for such unusual requests from Polish subsidiaries.
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