Planned changes to CIT and PIT regulations vs. transfer pricing – tax strategies and tax havens under the scrutiny of fiscal authorities
The latest proposals of changes to CIT and PIT regulations prepared by the ministry of finance attract comments primarily in the context of CIT imposed on limited partnerships and some registered partnerships. However, the bill of amendment, published on 16 September on the website of the Government Legislative Centre, also provides for numerous new solutions in the area of transfer pricing. Additionally, further improvements connected with COVID-19 are planned.
OPEN TAX STRATEGY FOR LARGE CIT PAYERS
The bill provides that CIT payers whose income exceeds EUR 50 million, and companies operating as a fiscal unity [podatkowa grupa kapitałowa] will need to publish tax strategy reports on their websites for each year. The most important aspects of the proposed regulations are as follows:
- The report on accomplishment of the tax strategy will have to be published within 9 months of filing the annual return;
- The report must include, without limitation: information about transactions with associated enterprises, to the value exceeding 5% of the balance sheet total, information about completed or planned restructuring, a list of submitted requests for tax rulings. The report will not need to disclose any business secrets, professional secrets, industry secrets or production processes;
- The report will be published on the websites of the entities concerned (or in the absence of a website – on a website of an associated enterprise), of which the National Fiscal Administration (KAS) needs to be informed;
- Failure to publish the report will be subject to a fine of up to PLN 1 million;
- Entities which enter into a cooperation agreement with KAS will be exempt from the obligation to publish the report.
TRANSACTIONS WITH TAX HAVENS – BENEFICIAL OWNER OF KEY IMPORTANCE
The planned regulations provide for a number of essential changes to transactions with entities located in countries which apply harmful tax competition (“tax havens”). The most essential change consists of applicability of the transfer pricing regulations not only to transactions with entities located in tax havens but also to transactions where the beneficial owner, within the meaning of Article 4a(29) of the CIT Act, is an entity established in a “tax haven”, even if the taxpayer’s counterparty is not such an entity. The other solutions proposed by the Ministry of Finance are as follows:
- The obligation to prepare transfer pricing documentation for each transaction with an entity established in a tax haven if it exceeds PLN 100,000. At the moment, the obligation to document applies to those transactions only in which payments are made to an entity from a tax haven (or if articles of association or a joint venture agreement are concluded with such an entity);
- Applicability of the limit of PLN 100,000 in transactions with associated enterprises regardless of the type of transaction (transactions involving goods, funds, services, other) where the beneficial owner is located in a tax haven (e.g. purchase of services from an associated enterprise to the amount of PLN 500,000 would need to be documented if the beneficial owner receiving payment in this respect is an entity from a tax haven);
- When determining whether the obligation to document applies, an allegation will be made that an entity established in a tax haven is the beneficial owner if the other party to the transaction makes settlements with tax havens in a given tax year. When determining the circumstances, the taxpayer/company other than a legal person would be obliged to exercise due diligence;
- Introduction of an additional element in the documentation of transactions with tax havens, in the form of economic justification of entry into such transactions, and in particular a description of anticipated economic benefits, including tax benefits.
The same solution as the one used in the CIT Act is also planned by the Ministry of Finance to be introduced in the PIT Act.
IMPROVEMENTS CONNECTED WITH COVID-19
The Ministry of Finance also proposes to introduce further improvements regarding CIT and PIT in connection with COVID-19 pandemic. The improvements concerning transfer pricing would include:
- No need to get a statement of the other party to a transaction about transfer pricing adjustment if the tax year to which the adjustment applies or the moment it is made fall in the period of the state of COVID-19 epidemic or epidemic emergency in Poland.
- When determining the right to be exempt from the obligation to document domestic transactions: no need to meet the condition of no tax loss if the income of the entity which incurred a tax loss is lower by at least 50% in the year of COVID-19 epidemic or epidemic emergency in Poland compared with the preceding year.
- The possibility to sign a statement on preparation of the local transfer pricing documentation and arm’s length of the documented transactions by:
- a person authorized by a foreign entrepreneur to represent him in the branch – for entities which are foreign entrepreneurs, and have a branch on the territory of Poland,
- a person authorized to represent – for other associated enterprise,
if the statement is submitted at the time of epidemics or epidemic emergency connected with COVID-19 or applies to a year in which said epidemic/epidemic emergency was in force (however, the statement still cannot be submitted by a proxy holder).
At the moment, the statement must be signed by each person holding the function of the company manager, according to the regulations of the Accounting Act.
LET’S TALK
The Andersen Transfer Pricing Team have substantial experience preparing transfer pricing policies and procedures and analysing the transfer pricing obligations, as well as preparing transfer pricing documentation.
Should you have any questions or doubts regarding the issues discussed here, we are ready to assist you.
KONTAKT
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