Poland: Administrative Courts condemn Tax Authorities’ unlawful Practices regarding the Questioning of Benchmarking Studies

The interest of the Polish Tax Authorities in benchmarking studies increases. Benchmarking studies are being carefully audited and regularly challenged during the tax controls, resulting in tax assessments and further tax proceedings before the administrative courts.

The Polish tax authorities tend to challenge the benchmarking studies based on their own studies or comparables collected from third parties (for example from banks or financial institutions). In most cases, such studies neither follow the standards set by OECD Guidelines Chapter III nor the Polish regulations.

The other questionable practice is claiming the value of median of the interquartile range as the only correct indicator of the arm’s length principle.

Recently, two breakthrough verdicts of the administrative courts were issued that could stop such practices.

In the first case, the Supreme Administrative Court in the verdict of 29 June 2022 (II FSK 3050/19) dismissed the appeal of the Tax Chamber on the verdict of the District Administrative Court. The Supreme Administrative Court acknowledged the District Administrative Court position (in favour of the taxpayer) that the benchmarking study was not aligned with the steps of the comparability analysis as outlined in the Polish regulations being an arbitrary assessment that could not be considered a reliable approximation of the arm’s length value.

The case in question pertained to the intercompany loan granted for the investment in the real property. The main objection of the courts was that the tax authority disregarded information about the taxpayer’s business, economic environment, objective of the loan and the risks associated with the investment in real property.

In the second case, the District Administrative Court in the verdict of 9 June 2022 (Supreme Administrative Court/Go 103/22) stated that there are no legal grounds for a tax assessment based on the median of the interquartile range established under the benchmarking study, as each value in the interquartile is arm’s length. In such a case, the tax assessment shall be made up to the lower quartile.

Notwithstanding these two positive verdicts for the taxpayer, it is highly recommended that the comparable studies follow comparability analysis principles as set out in the OECD Guidelines Chapter III. Moreover, the search methodology and economic reasoning should be properly documented in a narrative report and include all the obligatory elements, which are:

• a description of the comparable data search, selection process and the data sources, justification of the selection of the search criteria and the assumptions made,
• a justification of the reasons for adopting multiple years' or single year's data approach,
• a justification of the choice of the financial indicator,
• a description of the comparability adjustments and a justification of their application,
• an indication of the point or range established as a result of this analysis together with a description of the statistical measures,
• comparative data presented in an editable electronic format.
   

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