Polish Deal and transfer prices – the scope of planned changes
The bill introducing a broad package of changes to taxation under the so-called Polish Deal includes some novelties in the area of transfer prices. We recommend familiarizing with the upcoming changes already now. Some of the changes are intended to simplify regulations and these will lead to lifting some of the documentation requirements. Other changes cause an increased risk involved in documenting transactions with related parties.
The key changes of favourable nature are as follows:
1. Extension of the time limit for preparation of the documentation and submission of the TPR-C form
So far the deadline for submission of the TPR-C report ended upon the lapse of the 9th month following the end of the tax year. It was temporarily extended to 12 months due to the Covid pandemic. The proposed deadline for preparation of the documentation will end upon the lapse of the 10th month from the end of the tax year while the deadline for submission of TPR-C will end upon the lapse of 11th month following the end of the tax year. The information will need to be signed by the entrepreneur, a manager of the enterprise – for companies, but also a proxy holder or a professional attorney will be authorised to do so.
2. Cancellation of the statement confirming preparation of the documentation
The statement will be included in TPR-C, which is a positive change. However, the wording of the statement will be broader again. It will confirm that the local transfer pricing file was prepared, is consistent with the facts, and the transfer prices covered by the documentation are agreed on conditions which would have been agreed between unrelated parties. Consistency with the facts is of key significance given the stricter regulations governing fiscal sanctions, as described below.
Additionally, the way to proceed if gratuitous performances are involved was also specified. Prices will be deemed arm’s length if revenues established according to the arm’s length principle was added on a statistical basis.
3. Extension of the deadline for presentation of the documentation to the authorities at their request
The deadline of 7 days which has been applicable for years and is difficult to adhere to has been extended to 14 days. This, however, does not change the fact that the documentation must be prepared by the statutory deadline rather than when requested by the tax authorities.
4. Additional exclusions from the obligation to prepare the local file
The list of transactions excluded from the obligation was increased to include transactions related to credits, loans or bond issue, to which the safe harbour mechanism applies. According to the current legal status, the necessity to prepare the comparability analysis is excluded, but the local file is still required.
The local file will also need to be prepared for re-billing transactions. In this case, however, quite strict conditions to apply the exemption were provided for, namely the requirement of prompt settlement after payment to an unrelated party, no possibility to use profit markup or no possibility to use allocations keys, which excludes distribution of the services purchased to several entities.
5. Exclusions from the obligation to prepare comparability or consistency analyses
Such an analysis will not prepared also with respect to transactions made by related parties which are micro- or small enterprises, or with respect to tax-haven transactions.
It is also worth mentioning that VAT will be included in the transaction value to calculate the transaction threshold. The VAT will only be included if it is not neutral for the taxpayer.
Key changes of unfavourable impact:
The changes are to make taxpayers treat the issue of transfer pricing even more seriously.
1. Change to penalties linked with the local file
It will be possible to impose the penalty of 720 daily rates upon a person responsible in a situation where an enterprise failed to prepare the tax documentation, prepared the documentation in a way inconsistent with the actual situation or failed to enclose the required master file. The maximum penalty for delay in preparation of the tax documentation will amount to 240 daily rates. Potentially, such penalties may amount to millions of zlotys. Thus, it will be crucial that the documentation is made timely and corresponds to the actual situations, which frequently is not easy in case of entities which engage in controlled transactions on a large scale.
It should also be emphasized that from 2021 the documentation will include transactions of significant amount made with related and unrelated parties which transact with tax havens. Failure to identify such a situation and thus failure to prepare the documentation in this case may also expose the persons responsible at the taxpayer to having a fiscal penalty imposed.
All in all, the changes will simplify certain aspects of documenting. However, the legislator clearly aims to make taxpayers more disciplined in respect of timeliness and diligence of the tax documentation. The scope of changes to be actually made will be seen in the nearest future.
Should you have any questions or doubts regarding the issues discussed here, we are ready to assist you.
We also encourage you to read our previous newsletters concerning changes to be made under the Polish Deal.