Transfer pricing - Significant changes to documentation requirements

Tax Alert (04/2015)

13th of May 2015

Poland plans to introduce significant changes to the transfer pricing documentation requirements. According to the Draft Ammendments to the Corporate Tax Acts published on the website of the Polish Government Legislation Center on 28 April 2015 the New legislation is expected to enter into force as of 1 January 2016.

Entities obliged to prepare transfer pricing documentation

The draft legislation introduces a three-tiered approach to transfer pricing documentation, i.e. local documentation (“Local file”), documentation for group of companies (“Master File”) and report on global allocation of income and tax within the group (“Country-By-Country Reporting”)

According to the draft legislation the obligation to prepare transfer pricing documentation will as a rule apply to taxpayers whose revenues or costs exceed the equivalent of 2 M EUR in the tax year.  The draft provides that the new transfer pricing documentation requirements  will apply also to  taxpayers that conduct their business operations without having  legal personality (e.g. partnerships) giving them the the possibility to appoint a partner responsible for drafting the documentation, which however, does not release the remaining partners from their responsibilities in this respect.  

Taxpayers whose revenues or costs exceed the equivalent of 10 M EUR in a given tax year will be additionally obliged to prepare benchmarking studies.  

If the taxpayer’s revenues or costs exceed the equivalent of 20 M EUR in a given tax year, the taxpayer will be also obliged to prepare documentation that will contain information about the whole group of related parties (“Master file”).

As regards the largest entities whose revenues exceed the equivalent of 750 M EUR in a given tax year, there will be an obligation to produce a report on the income and tax paid in by subsidiaries, their places of conducting business as well as their permanent establishments  (“Country-By-Country Reporting”).

Scope of transfer pricing documentation

In line with the draft amendments, taxpayers will be obliged to prepare tax documentation not only in respect of their transactions with related parties but also in respect of other events recognized in the books of accounts, the terms of which have been determined (or imposed) with their related parties, including the contracts for finance management (e.g. cash pooling), cost sharing agreements, agreements related to incorporation of entities which are not legal persons, joint venture contracts and other comparable agreements. 

Content of transfer pricing documentation

The documentation prepared by taxpayers whose revenues or costs exceed the equivalent of 2 M EUR, but do not exceed the equivalent of 10 M EUR in a given tax year should contain descriptions of:

  • The organizational and management structure,
  • the conducted business activity,
  • the economic strategy, including the transfers of economically material functions or assets or risks that have impact on incomes (loss), reported in the tax year or during previous tax years, 
  • business environment.

In addition, the documentation prepared with respect to the above-mentioned taxpayers should contain descriptions of transactions and other events including:

  • indication of the type of the transactions that materially impact the amount of the income (loss),
  • description regarding compliance of the terms of the transactions established with related parties and the terms that would otherwise be agreed upon between unrelated parties,
  • financial data, including cash flows related to the transactions or other events,
  • documents that materially impact the transactions or other events,
  • description of the analysis of assets, functions and risks,
  • description of the method and manner of calculating the income and justification of their choice,
  • the algorithm for settling the transactions or other events, together with the method of calculating the values affecting the income (loss) of the taxpayer or the taxpayer’s partner,  
  • the taxpayer’s financial data supported with the financial statements after they are approved.

As regards taxpayers whose revenues or costs exceed the equivalent of 10 M EUR, but do not exceed 20 M EUR in a given tax year, the documentation should additionally contain a benchmarking study based on benchmarking data used in calculating the intercompany settlements, and in particular local comparables relevant for entities with its registered office or management in the territory of the Poland as well as indicating the source of the data.

Taxpayers whose revenues or costs exceed the equivalent of 20 M EUR in the tax year will be also obliged to draw up tax documentation concerning a group of entities (the so-called “Master File”) which should contain, inter alia:

  • indication of the related party that has prepared the documentation,
  • the organizational structure of the group of related parties,
  • description of the rules for determining transactional prices (group transfer pricing policy) followed by the group;
  • description of the business activity conducted by the group;
  • description of the intangible assets possessed, created, developed and used by the group;
  • description of the financial situation of the group entities, specifically including the consolidated financial statements of related parties comprising the group;  
  • description of agreements with tax authorities of other countries concerning income tax, especially Advanced Pricing Agreements;

Transfer Pricing - other changes

Furthermore, the draft amendments include inter alia the following obligations and requirements:

  • duty to prepare the tax documentation not later than until the date of submission of the tax return for the respective tax year;
  • requirement to have a statement confirming preparation of complete documentation within the statutory deadline signed by a member of the management board of the local entity / person representing a foreign entity.  The statement should be attached to the tax return filed for the given year,
  • requirement to have the transfer pricing documentation verified periodically, at least once a year (however benchmarking analyses should generally be subject to verification once every three years);
  • obligation to attach a simplified report on transactions with related parties to the tax return (in case of taxpayers whose revenues or costs exceed 10 M EUR).

Additionally, the draft amendments modify the current definition of related parties – pursuant to the draft, by related parties there will be understood entities that possess interest (direct or indirect) in the capital of another entity which is equal to not less than 20% (currently 5%).


The changes introduced by the Ministry of Finance may have a significant impact on the scope of taxpayer’s responsibilities as regards preparation of transfer pricing documentation.

This is yet another sign that tax authorities have increased their interest on transfer pricing. In this context it is worth to mention e.g. the recent amendments to the Transfer Pricing Ordinance (July 2013), the explanations published by the Ministry of Finance concerning business restructuring (February 2014), the latest report by the Polish Supreme Audit Office pointing out lack of proper control of the settlements between related parties (January 2015), intensified preparations of tax authorities in respect of transfer pricing audits and the organizational changes within tax administration.

It is also important to highlight that the proposed amendments take into account the plan of actions set out in the OECD Report on counteracting BEPS (“Base Erosion and Profit Shifting”), in particular action 13: “Re-examine transfer pricing documentation” and the EU Code of Conduct on transfer pricing documentation for associated enterprises in the European Union (Official Journal of EU C of 27 June 2006).

Apart from the significant changes related to the scope of the documentation, it is important also to note that   documentation has to be submitted in Polish language (the Local file, the Master file and the Country-by-Country Report). In addition there is a clearly stated preference for use of local comparables. Last but least the amendments introduce personal responsibility for local management boards/ persons representing foreign entities to file each year a statement confirming the preparation of the complete documentation within the statutory deadline and filing it with the annual tax return.

We will follow the progress of works on the draft and will keep you informed accordingly.  Should you wish to discuss the impact of the planned amendments on your business activities, do not hesitate to contact us.

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