The Polish parliament is currently proceeding with the amendment to the Polish Tax Law that covers transfer pricing. This is the most complex revision of the transfer pricing regulations since their introduction. The amendment aligns Polish regulations with the latest OECD Guidelines following the BEPS projects. The new law comes into effect from January 1, 2019. The most important changes include:
Transfer pricing methods
Apart from the standard TP methods (CUP, C+, resell minus, TNMM and Profit Split) in justified cases taxpayers will be allowed to use valuation techniques and other methods.
Recharacterization or non-recognition of the transactions
The tax authorities will have the power to disregard or delineate transactions that apply the principle of substance over form.
Safe harbor for low value-adding services
The OECD cost plus 5% for low-value-added services will be implemented. Taxpayers will be required to keep detailed calculations of the fees paid. Safe harbor for IC loans: applicable for loans up to five years in the event i) total loans from the related entities do not exceed PLN 20 million, and (ii) there are no warranty fees or other charges for granting a loan, and (iii) the interest rate is set based on the official announcements published by the MoF.
Transfer Pricing Adjustments
The purpose is to eliminate divergent tax rulings issued by the National Fiscal Information on the tax treatment of TP adjustments. The TP adjustment should be reported as income or cost for tax purposes in the period to which it relates, providing that the taxpayer has a statement from the related party confirming recognition for tax purposes.
Local File Documentation
New materiality thresholds apply for local files to limit the documentation burden: PLN 10 million (for transactions concerning tangible assets and financing) and PLN 2 million (for services and other transactions). Domestic transactions will be excluded from the Local File requirement unless the counterparties are located in an SEZ, receive tax relief or have incurred losses in a tax year. A Benchmark analysis will be an obligatory element of the documentation for each transaction in a Local File. The deadline for preparing the Local File will be nine months after the end of the tax year. Master File Documentation: related entities consolidated using the full or proportional method will be required to have a Master File if the group achieved consolidated revenues over PLN 200 million in the preceding financial year. The deadline for preparing the Master File will be 12 months after the end of the tax year. Master Files in English will be accepted (however, the tax authorities may request submission of a Polish version within 30 days).
However, taxpayers could choose to prepare its Local File and Master File documentation for 2018 under the new system.
Formal statement on documentation
All members of the taxpayer’s management board will have to submit a statement that the Local File was prepared and IC pricing is arm’s length. The lack of such a statement or making a false statement would trigger a potential fiscal penal liability consisting of a fine up to approx. PLN 21.5 million. The first submission deadline will be September 2020.
Penalties for the TP assessment
A new penalty system will replace the famous “50%” tax rate (applied where there is no TP documentation). The additional tax (over 19%) could range from 10% to 30% (the latter where the TP assessment is over PLN 15 million and there is no documentation).
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