Pursuant to Article 23m(1)(1) of the PIT Act and Article 11a(1)(1) of the CIT Act, the transfer price is “the financial result of the conditions established or imposed as a result of existing ties, including the price, fee, financial result or financial ratio”. Based on this definition, it can therefore be concluded that transfer prices are the prices of sold goods and services and intangible assets set by related parties, which consequently have an impact on the company’s final financial result and financial ratios.
Transfer prices are generally not in line with market prices, i.e. general prices applied by unrelated parties.
According to the Organisation for Economic Co-operation and Development (OECD) Guidelines, transfer pricing is an important factor in determining tax liabilities, taking into account the split between countries in which multinational companies operate.
The application of transfer pricing by related parties leads to a correct assessment of the performance of related companies.1
Pursuant to the Corporate Income Tax Act, a company is obliged to prepare tax documentation if it carried out in a tax year controlled transactions with related parties whose value exceeded the limit specified in the Tax Act.
A tax authority or tax inspection authority may request the taxpayer to prepare and submit tax documentation for transactions whose value does not exceed set limits, if there are circumstances indicating that their value is likely to be understated.
The criteria are specific–according to the Act:
Corporate Income Tax Act (UPDOP), version 2019: Article 11k
|PLN 10,000,000||in the case of a commodity transaction;
|PLN 10,000,000||in the case of a financial transaction|
|PLN 2,000,000||in the case of a service transaction|
|PLN 2,000,000||in the case of a transaction other than those referred to in points 1 to 3|
|The above thresholds of PLN 10 million and PLN 2 million are net amounts, for one type of transaction (e.g. management service, transport service, purchase of goods, sale of goods, etc.), for all related counterparties jointly with which this homogeneous transaction occurred.
These are the thresholds for verifying whether a company must produce local documentation. It is important to note that, as a general rule, each local documentation should contain a comparative analysis, so-called benchmarking, which is valid for 3 years, but due to COVID-19, it may have to be redone due to a significant change in the terms of the transaction.
TPR information, i.e. transfer pricing reporting forms, must be sent to the tax office within 9 months after the end of the year (in 2020 it was exceptionally 12 months and it can be assumed that in 2021 it will also be the case–it will depend on anti-crisis regulations).
This information is prepared on the basis of transfer pricing documentation and contains a great deal of detail on pricing in related party transactions. For the tax office, it is an ideal tool to audit taxpayers.
If you need support in preparing transfer pricing documentation–Please, contact us!