Elements of transfer price documentation
In accordance with the provisions in force from 01/01/2019, transfer pricing documentation is prepared on two levels:
- Local transfer pricing documentation,
- Group transfer pricing documentation.
Elements of local transfer pricing documentation (local file)
Description of the related entity:
- description of the management structure and the organizational chart of the related entity
- description of the underlying activities of the related entity
Description of the transaction, including analysis of functions, risks and assets:
- the object and type of the controlled transaction
- information on related entities participating in the controlled transaction
- functional analysis of related entities participating in the controlled transaction, taking into account significant changes compared to the previous financial year
- the method of calculating the remuneration, along with the adopted assumptions
- controlled transaction value, broken down by counterparties
- payments received or transferred related to a controlled transaction, including set-offs of mutual claims
- contracts, intra-group agreements or other documents relating to a controlled transaction
- tax agreements or interpretations relating to a controlled transaction, including advance pricing agreements, concluded with tax administrations of countries other than the Republic of Poland or issued by these administrations
Transfer pricing analysis:
- indication of the method used to verify the transfer price together with a brief justification of the choice
- indication of the party or transaction subject to examination as part of the transfer-pricing analysis, if it results from the indicated method used to verify the transfer prices
- description of the benchmarking, or
- description of the compliance analysis
- reference of the transfer price to the result of the analyzes (benchmarking or compliance analysis), with justification for deviations, if any
From 01.01.2019, transfer pricing analysis is a mandatory element of the local transfer pricing documentation.
There are two formulas for preparing a transfer pricing analysis:
Comparative analysis – analysis of data of unrelated entities or transactions concluded
with unrelated entities or between unrelated entities considered comparable to the conditions established in controlled transactions.
If the preparation of a comparative analysis is not appropriate in the light of a given transfer pricing verification method or it is not possible with due diligence, the taxpayer prepares a compliance analysis.
Compliance analysis – an analysis showing compliance of the conditions under which the controlled transaction was concluded with the terms that would be established by unrelated entities.
- approved financial statements for the financial year prepared on the basis of accounting regulations,
- a description that enables the allocation of financial data relating to a controlled transaction to an item in the financial statements or to other information contained therein.
The detailed scope of the elements of local transfer pricing documentation is specified in the Regulation of the Minister of Finance of December 21, 2018 on transfer pricing documentation in the field of corporate income tax / personal income tax.
Legal status 2017
ELEMENTS OF TAX DOCUMENTATION
Local documentation (so-called local file)
- Pursuant to Art. 9a paragraph. 2b of the CIT Act, the basic documentation includes a description of transactions or other events, including liquidity management agreements, cost sharing agreements between the taxpayer (as well as a company that is not a legal person) and its related entities, including :
- indication of the type and subject of these transactions or other events,
- financial data, including cash flows relating to these transactions, or to record these events,
- data identifying related entities carrying out these transactions or capturing these events,
- description of the course of these transactions or other events, including functions performed by the taxpayer (or a company other than a legal person) and related entities, balance sheet and off-balance sheet assets engaged by them, human capital and the risks incurred,
- indication of the method and manner of calculating the taxpayer’s income (loss) with the justification for their choice, including the algorithm for calculating settlements related to these transactions or other events and the method of calculating the value of settlements affecting the income (loss) of the taxpayer (or other partners of the company that is not a legal person)
- Comparative data analysis (taxpayers whose revenues or costs exceeded the equivalent of EUR 10,000,000 or who have a share in a partnership whose revenues or costs exceeded the above-mentioned threshold).
- Description of the financial data of the taxpayer (or a company other than a legal person) allowing the comparison of settlements (reminding settlements between entities regarding transactions or other events) with the data resulting from the approved financial statements, if the obligation to prepare it results from the applicable taxpayer or company accounting regulations
- Information about the taxpayer (or the company that is not a legal person), including a description of:
- organizational structure and management structure,
- the subject and scope of the business,
- the implemented economic strategy, including transfers between related entities between related entities of economically significant functions, assets or risks affecting the income (loss) of the taxpayer,
- competitive environment.
- Documents , in particular:
- agreements, agreements concluded between related entities or other documents relating to transactions or other events, a company agreement that is not a legal person, a joint venture agreement or similar agreements documenting the principles of granting rights to shareholders (parties to the agreement) to participate in profit and participate in losses
- income tax agreements concluded with tax administrations of countries other than the Republic of Poland, relating to transactions or other events, in particular advance pricing agreements.
Legal status 2016
Tax documentation should be described based on the following scope of information:
- Defining the functions to be performed by the entities participating in the transaction , taking into account the assets used and the risk taken,
- Determination of all expected costs related to the transaction as well as the form and date of payment,
- The method and manner of profit calculation and determination of the price of the subject of the transaction,
- Defining the economic strategy and other activities as part of it – if the value of the transaction was influenced by the strategy adopted by the entity,
- Indication of other factors – if, in order to determine the value of the subject of the transaction by the entities participating in the transaction, these other factors have been taken into account, and in the case of concluding a company agreement that is not a legal person, a joint venture agreement or a similar agreement – in particular the principles adopted in the agreement regarding the rights of partners (parties to the contract) to participate in profit and participate in losses,
- Specification of the benefits expected by the entity obliged to prepare documentation related to obtaining benefits – in the case of contracts for benefits (including services) of an intangible nature.
The above catalog is included in Art. 9a section 1 of the Corporate Income Tax Act (Journal of Laws No. 21, item 86) and in Art. 25a paragraph. 1 of the Personal Income Tax Act (Journal of Laws No. 80, item 350) and presents the minimum scope of information that must be included in the tax documentation. In order to best fulfill the documentation obligation, the taxpayer should also include in the documentation all other information that may have an impact on the described transaction. For example, service documentation should be expanded with a detailed description of the services received and confirmation that the fees paid are related to the services provided.