Tax documentation is an extremely important element in the context of transfer pricing. It is a formal and legal requirement that has been imposed on taxpayers by the regulations of a specific country. It consists in drawing up a document which describes, in accordance with the guidelines and tax regulations, a transaction or the sum of transactions subject to such obligation.
Detailed guidelines and applicable regulations related to transfer pricing tax documentation differ from country to country. This section discusses the regulations in force in Poland, which are largely based on the experience of international organizations and experts. The OECD and PPATA guidelines as well as European Union directives and communications are presented here.
The documentation obligation in Poland was introduced to the income tax acts as of January 1, 2001 (Art. 9a and Art. 11 of the Corporate Income Tax Act / Art. 25 and Art. 25a of the Personal Income Tax Act). This obligation covered transactions between related entities and those with residents of countries conducting harmful tax competition (i.e. the so-called tax havens). Initially, the provisions of the tax law did not specify the form of transfer pricing tax documentation, but only indicated general elements that should be included in it.
With the amendment to the regulations, which entered into force on On 1 January 2017, the scope of documentation obligations was significantly expanded, making it dependent on the size of the taxpayer’s business. The legislator has assigned the documentation a specific three-tier reporting system, which consists of local tax documentation, group tax documentation, and reporting by country. The legislator also introduced a time limit for the preparation / update of documentation, i.e. before the deadline for submitting a tax return. Taxpayers were also required to submit a declaration on the preparation of tax documentation to the competent tax office. The change in regulations is implied by changes in EU law,
Another amendment to the tax regulations entered into force on 01/01/2019. Apart from changing the obligatory elements of transfer pricing documentation, the method of verifying the documentation obligation has been modified. In addition, the statement on the preparation of local transfer pricing documentation was expanded to include the certification of the arm’s length nature of the terms and conditions agreed between the parties.

Documentation obligation

Regulations concerning transfer pricing have changed over the last few years. Regulations valid until On December 31, 2016, the occurrence of the documentation obligation was contingent on exceeding the limits specified in the Act (Article 9a of the CIT Act / Article 25a of the PIT Act).
Together with the amendment to the provisions of the Income Tax Act, from On 1 January 2017, the documentation obligation was defined taking into account two criteria that had to be met cumulatively:
• the criterion of the amount of revenues or tax deductible costs,
• the transaction significance criterion (transaction thresholds depending on the amount of revenues / costs)
On 01/01/2019, another amendment to the transfer pricing regulations entered into force. The documentation obligation is currently determined on the basis of the limits indicated in the PIT and CIT Acts.
The description of the criteria has been presented with division into individual legal states.

Local documentation

From January 1, 2019, the obligation to prepare  local transfer pricing documentation applies  to entities that in a given financial year:

a. carried out homogeneous controlled transactions with related entities or entities established in countries or territories applying harmful competition (tax havens),

b. exceeded the documentation thresholds.

 

A new mechanism for determining the amount of documentation thresholds depends on the value of a controlled transaction of a homogeneous nature, determined by amount.

 

A controlled transaction is understood  as economic activities identified on the basis of the actual behavior of the parties, including attribution of income to a foreign establishment, the terms of which have been established or imposed as a result of the relationship.

 

The documentation thresholds are  set separately for:

each controlled transaction of  a homogeneous nature ,

cost and income side.

 

When assessing whether  a transaction  is  homogeneous  , the following factors should be taken into account:

a) uniformity of the controlled transaction in economic terms,

b) comparability criteria,

c) transfer pricing verification methods,

d) other material circumstances of the controlled transaction.

 

The value of a homogeneous controlled transaction is  determined irrespective of the number of accounting documents, payments made or received, and related entities with which  the  controlled transaction is concluded.

The value of a controlled transaction  is determined on the basis of:

1) invoices received or issued for a given financial year,

2) contracts or other documents – if the invoice has not been issued or in the case of a financial transaction,

3) received or transferred payments – if it is not possible to determine this value on the basis of points 1 and 2.

 

 

The obligation to prepare transfer pricing documentation arises after exceeding the documentation thresholds, which for individual controlled transactions are:

 

 

No.
Type of transaction
Documentation threshold
With related entities:
1.
 Commodity transaction
PLN 10,000,000.00
2.
 Financial Transaction
PLN 10,000,000.00
3.
 Service transaction
2,000,000.00 PLN
4.
Transaction other   than specified in points 1-3
2,000,000.00 PLN
with entities from tax havens:
1.
 Controlled transaction
PLN 100,000.00
2.
Articles of association not being a legal person (total value of contributions made by partners)
PLN 100,000.00
3.
Joint venture agreement or other similar agreement (value of a joint venture)
PLN 100,000.00
4.
Receivables paid, the beneficial owner of which has its seat or management board in a country and territory applying harmful tax competition
PLN 500,000.00
If  the transaction  is denominated in a foreign currency, its value is converted into PLN according to the average exchange rate of the National Bank of Poland, in force on the last business day preceding the day of the economic operation or the conclusion of the contract.

Transaction values ​​are determined  in net terms , i.e. values ​​less tax on goods and services.

When determining the value of a controlled transaction, the following values ​​are taken into account:

No.
Type of controlled transaction
Value of the transaction
1.
loans and credits
Capital value
2.
Bond issue
Nominal value
3.
Sureties and guarantees
Amount of cover
4.
Assignment of income (loss) to a foreign establishment
Value of assigned revenues or expenses
5.
Other transactions
Value appropriate to a given controlled transaction

Exclusion of the obligation to prepare local documentation

The obligation to prepare local documentation does not apply to controlled transactions:

1) concluded only by  related entities  having their place of residence, seat or management board in the territory of the Republic of Poland in the tax year in which each of the related entities meets the following conditions jointly:

  1. a) does not benefit from subjective exemptions (Article 6),
  2. b) does not benefit from exemptions related to a special economic zone (Article 17 (1) (34 and 34a)),
  3. c) has not suffered a tax loss.

2) covered by a prior pricing agreement during the period covered by the agreement

3) the value of which in its entirety does not constitute income or tax deductible costs, with the exception of financial transactions, capital transactions and transactions related to investments, fixed assets or intangible assets

4) between companies forming a tax capital group

5) if the connections result only from the connection with the State Treasury or local government units or their associations

6) in which the  price  was determined in the open tender procedure pursuant to the  Act  of 29 January 2004 – Public Procurement Law (Journal of Laws of 2018, items 1986 and 2215 and of 2019, item 53);

7) carried out between a group of agricultural producers entered in the register referred to in  article 2. 9 sec. 1  of the Act of September 15, 2000 on agricultural producer groups and their associations and amending other acts (Journal of Laws of 2018, item 1026), and its members, regarding the sale of:

  1. a) to a group of agricultural producers of products or groups of products produced on the holdings of members of such a group,
  2. (b) by an agricultural producer group for its members, the goods used by the member for the production of the products or groups of products referred to in point (a); a, and the provision of services related to this production;

8) carried out between a pre-recognized group of fruit and vegetables producers or a recognized organization of fruit and vegetables producers, operating on the basis  of the Act  of 19 December 2003 on the organization of the fruit and vegetable markets and the hop market (Journal of Laws of 2018, item 1131 and 1633), and its members regarding disposal for consideration:

  1. (a) for that group or organization of products or groups of products produced on the holdings of members of that group or organization,
  2. (b) by that group or organization for its members, goods that are used by the member for the production of the products or groups of products referred to in point (a); a, and the provision of services related to this production;

9) consisting in assigning income to a foreign establishment located on the territory of the Republic of Poland by the taxpayers referred to in art. 3 sec. 2, if the provisions of relevant international agreements to which the Republic of Poland is a party provide that these revenues may be taxed only in a country other than the Republic of Poland.

Deadlines for the preparation of local transfer pricing documentation

Taxpayers are required to prepare local transfer pricing documentation
by the ninth month  after the end of the financial year for which the documentation is prepared.

 

Group documentation

From January 1, 2019, taxpayers are required to prepare group transfer pricing documentation if they meet the following conditions:

  • are subject to the obligation to prepare local documentation and
  • they belong to the group of related entities whose consolidated revenues in the year preceding the documented financial year exceeded the equivalent of PLN 200,000,000.

 

Group transfer pricing documentation may be prepared by another entity belonging to the group of related entities.

If the group transfer pricing documentation has been prepared in English, the tax authority may require the taxpayer to submit the group transfer pricing documentation in Polish within 30 days from the date of delivery of this request.

 

Deadlines for the preparation of group transfer pricing documentation

Taxpayers are required to prepare group transfer pricing documentation
by the twelfth month  after the end of the financial year for which the documentation is prepared.

 

Country by country reporting

Domestic entities whose consolidated revenues, within the meaning of the accounting regulations, in the territory of the Republic of Poland and outside its territory, exceeded the equivalent of EUR 750,000,000 in the previous tax year, are required to submit to the tax office  a report on the amount of income and tax paid and the place of business, units subsidiaries and foreign companies belonging to the capital group , in the tax year, within 12 months from the end of the tax year of the domestic entity for which the report is submitted (the so-called country-by-country reporting). This report is submitted on  the CIT-CBC form. An entity exceeding the above-mentioned the threshold of EUR 750 million is also required to prepare local and group documentation.

 

Request from the authority to submit documentation by the taxpayer

In addition, the tax authority may require the taxpayer to prepare and submit tax documentation for transactions or other events whose value does not exceed the above-mentioned limits, in the event of circumstances indicating the probability of their underestimation in order to avoid the obligation to prepare tax documentation. The request should indicate the circumstances proving the probability of underestimating the value of the transaction or other events.

The emergence of the documentation obligation should be considered in the scope of:

The obligation to prepare tax documentation (the so-called documentation obligation) arises in accordance with the principles set out in Art. 9a paragraph. 1 of the Corporate Income Tax Act (/ Article 25a (1) of the Personal Income Tax Act).

 

This obligation applies to:

    1. Taxpayers whose revenues or costs, within the meaning of the accounting regulations, determined on the basis of the books of accounts, will exceed the equivalent of EUR 2,000,000 in the year preceding the tax year, this obligation covers transactions that have a significant impact on the taxpayer’s income (possibly losses) or other events recognized in the books of accounts, the terms of which have been agreed (or imposed) between related entities.

Taxpayers,

whose revenues or costs, within the meaning of the accounting regulations, determined on the basis of the kept accounting books did not exceed the equivalent of EUR 2 million in the year preceding the tax year, as a rule, the obligation to prepare tax documentation does not apply. The exceptions are transactions or other events with entities from the so-called tax havens.

 

Transactions or other events with a significant impact on the amount of the taxpayer’s income (loss) are transactions or other events of one type, the total value of which in the tax year exceeds the equivalent of EUR 50,000.

 

Further dependencies are shown in the table: 

 

The amount of revenues

Value of the transaction / other events
from 2,000,000 EUR to 20,000,000 EUR the equivalent of EUR 50,000

plus EUR 5,000 for each EUR 1,000,000 of income above EUR 2,000,000
   
from EUR 20,000,000 to EUR 100,000,000 the equivalent of EUR 140,000

plus EUR 45,000 for every EUR 10,000,000 of income above EUR 20,000,000
   
over EUR 100,000,000 in excess of EUR 500,000

The above table shows that the larger the size of the business (i.e. the higher the revenues or costs), the higher the threshold of the transaction subject to tax obligations.

 

  1. Taxpayers who make (directly or indirectly) payment of receivables resulting from transactions or other events to an entity having their place of residence, seat or management in the territory or in a country applying harmful tax competition ( tax havens ), if the total amount (or its equivalent) resulting from from the contract or actually paid in the tax year, the total amount of benefits payable in the tax year exceeds the equivalent of EUR 20,000.00 .
  1. Taxpayers concluding with an entity resident, registered office or management board in the territory or in a country applying harmful tax competition a company agreement that is not a legal person or a joint venture agreement or another agreement of a similar nature, if one of the parties to the agreement is an entity with the value of contributions made by the partners, or the value of the joint venture exceeds the equivalent of EUR 20,000.00 .
  1. Partners of a partnership, the documentation obligation applies to transactions regarding:
    1. articles of association which are not a legal person (therefore also to a partnership agreement), in which the total value of contributions by partners exceeds the equivalent of EUR 50,000
    2. a joint venture agreement or another agreement of a similar nature, in which the value of the joint venture specified in the contract, and if this value is not specified in the contract, expected on the date of conclusion of the contract exceeds the equivalent of EUR 50,000.
  1. Taxpayers starting their activity starting from the month following the month in which the revenues or costs exceeded the above-mentioned amount.
A taxpayer who has been established is not considered to be a taxpayer starting a business:

1) as a result of transformation, merger or division of taxpayers, or

2) as a result of the transformation of a company that is not a legal person, or

3) by natural persons who contributed to the capital of a newly created entity a previously run enterprise or assets of this enterprise with a total value exceeding the PLN equivalent of at least EUR 10,000, with the proviso that the value of these components shall be calculated by applying Art. 14.
  1. Transactions carried out between a group of agricultural producers entered in the register (or a pre-recognized group of fruit and vegetables producers or a recognized organization of fruit and vegetables producers, operating pursuant to the Act of December 19, 2003 on the organization of the fruit and vegetable markets, the hops market, the dried market feed and markets for flax and hemp grown for fiber) and its members, unless they relate to:
  2. sale for consideration to a group of agricultural producers of products or groups of products produced on the holdings of members of such a group;
  3. the sale by a group of agricultural producers for consideration to its members of the goods used by the member for the production of products or groups of products referred to in point 1, and the provision of services related to this production.

The amounts indicated in euro are converted into the Polish currency at the average exchange rate announced by the National Bank of Poland, applicable on the last business day of the tax year preceding the tax year to which the tax documentation relates.

The documentation obligation also arises (regardless of the amount of revenues or costs incurred) also for the tax year following the tax year for which taxpayers were required to prepare tax documentation.

Comparative data analysis

In the case of entities whose income or costs, within the meaning of the accounting regulations, determined on the basis of the books of account, in the year preceding the tax year, exceeded the equivalent of EUR 10 million, or in the case of entities with shares in a company that is not a legal person, the income or costs of which, within the meaning of of accounting regulations, determined on the basis of the ledgers, exceeded the equivalent of EUR 10 million in the year preceding the tax year, except for the above-mentioned description, the documentation obligation includes the preparation of the so-called comparative data analysis (the so-called benchmark study) .

Comparative data analysis – this is a description of the analysis of data from independent entities or data agreed with an independent entity, considered comparable to the conditions set in transactions or other events, used to calculate settlements between entities, together with the source of these data.

 

The analysis of comparative data should include comparable data on entities with their registered office or management board in the territory of the Republic of Poland, if the data are available to the taxpayer. In the absence of such data, the taxpayer should attach to the tax documentation a description of the compliance of the terms of the transaction and other events agreed with related entities with the terms that would be agreed between independent entities.

 

Report on transactions and other events with related entities and entities from tax havens (CIT / PIT – TP)

Entities with revenues or costs in excess of EUR 10 million are required to attach to the submitted tax return a report on transactions and other events with related entities and entities from tax havens. This report will allow the tax authorities to collect very accurate information about the taxpayer and the types of transactions he concludes, their value and materiality. Therefore, it will be an important tool of the tax authorities to search for and select entities for fiscal control and to select transactions that are to be of particular interest. The taxpayer shall submit this report on the CIT-TP form.

 

Group documentation (so-called master file)

 

In the case of a taxpayer (or a company that is not a legal person, in which the taxpayer obtains income from participation), if the income of that taxpayer or that company or costs, within the meaning of the accounting regulations, exceeded in the case of a taxpayer in the year preceding the tax year, and in the case of a non-person company in the previous financial year within the meaning of the accounting regulations, the equivalent of EUR 20 million, the tax documentation prepared by him should also contain information about the group of related entities , which includes the taxpayer (apart from the so-called basic documentation).

 

Country by country reporting

Domestic entities whose consolidated revenues, within the meaning of the accounting regulations, in the territory of the Republic of Poland and outside its territory, exceeded the equivalent of EUR 750,000,000 in the previous tax year, are required to submit to the tax office a report on the amount of income and tax paid and the place of business, units subsidiaries and foreign companies belonging to the capital group , in the tax year, within 12 months from the end of the tax year of the domestic entity for which the report is submitted (the so-called country-by-country reporting). This report is submitted on the CIT-CBC form. An entity exceeding the above-mentioned the threshold of EUR 750 million is also required to prepare local documentation, comparability analysis and group documentation.

 

Request from the authority to submit documentation by the taxpayer

In addition, the tax authority may require the taxpayer to prepare and submit tax documentation for transactions or other events whose value does not exceed the above-mentioned limits, in the event of circumstances indicating the probability of their underestimation in order to avoid the obligation to prepare tax documentation. The request should indicate the circumstances proving the probability of underestimating the value of the transaction or other events.

 

Deadline for preparing tax documentation and management’s statement

Pursuant to the Regulation of the Minister of Finance of March 14, 2018 on the extension of the deadlines for the performance of certain obligations in the field of tax documentation, the deadline for the preparation of tax documentation, submission to the tax office of a declaration of preparation of tax documentation, and attachment to the tax return is extended until the end of the ninth month after the end of the tax year. tax for the tax year of the simplified statement

The documentation obligation covers a transaction or the sum of transactions between related entities, in which the total amount (or its equivalent) resulting from the contract or actually paid in the tax year, the total amount of benefits due in the tax year exceeds the equivalent of:

  • EUR 100,000 – if the value of the transaction does not exceed 20% of the share capital * (only for corporate income tax payers); or
  • EUR 30,000 – for the provision of services, sale or sharing of intangible assets; or
  • 50,000 EUR – in other cases.

The obligation to prepare documentation also covers a transaction in connection with which the payment of receivables resulting from such a transaction is made directly or indirectly to an entity having its place of residence, seat or management in the territory or in a country applying harmful tax competition, if the total amount (or its equivalent) is the total amount of benefits due in the tax year or actually paid in the tax year exceeds the equivalent of EUR 20,000.

In the case of a company agreement that is not a legal person, the obligation to prepare documentation covers agreements in which the total value of contributions by partners exceeds the equivalent of EUR 50,000.

In the case of a joint venture agreement or other agreement of a similar nature, this limit applies to the value of the joint venture specified
in this agreement, and in the absence of this value specified in the agreement – to the value of the jointly implemented venture as at the date of conclusion of the agreement.

In the case of a company agreement that is not a legal person, if one of the parties to the agreement is an entity with a place of residence, seat or management board in the territory or in a country applying harmful tax competition, the documentation obligation covers agreements where the total value of contributions by partners exceeds the equivalent of EUR 20,000 .

In the case of a joint venture agreement or other agreement of a similar nature, this limit applies to the value of the joint venture specified
in this agreement, and in the absence of this value specified in the agreement – to the value of the jointly implemented venture as at the date of conclusion of the agreement.

Moreover, the obligation to prepare documentation also covers transactions carried out by groups of agricultural producers and groups of fruit and vegetables producers. The groups mentioned above will not have to prepare tax documentation for two types of transactions:

  • sale for consideration to a group of products or groups of products produced on the holdings of members of such a group;
  • the disposal by the group for consideration of its members of goods used by the member for the production of products or groups of products and the provision of services related to such production.

In the case of other transactions concluded within the above-mentioned groups, if the relevant transaction limit is exceeded, then the documentation obligation will arise.

The amounts indicated in euro are converted into the Polish currency at the average exchange rate announced by the National Bank of Poland, applicable on the last day of the tax year preceding the tax year in which the transaction was concluded.

* The share capital is determined on the basis of the amount of the share capital in accordance with the entry in the National Court Register and its relevant adjustments resulting from tax regulations (Article 16 (7) of the Corporate Income Tax Act). The adjustments include the following:

  1. the amount declared but not actually paid in the share capital;
    2. the amount of the share capital covered by claims arising from loans (credits) and interest on these loans (credits) [conversion of debt into equity];
    3. the amount of intangible assets, which are not written down, and contributed to cover this share capital.

Footnotes

* The share capital is determined on the basis of the amount of the share capital in accordance with the entry in the National Court Register and its relevant adjustments resulting from tax regulations (Article 16 (7) of the Corporate Income Tax Act). The adjustments include the following: the amount declared but not actually paid into the share capital, the amount of the share capital covered by debt claims (loans) and interest on these loans (credits) [debt-to-equity conversion]; the amount of intangible assets that are not written down and contributed to cover this share capital.

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