The new transfer pricing documentation requirements for transactions between affiliates

With reference to the rule changes regarding the drawing up of transfer pricing documentation, the responsibility to submit transfer pricing documentation to the tax authority when required, and to create a declaration or a simplified report, will only relate to entities that record revenue or costs of a identified level. The responsibility to create this documentation will relate to taxpayers when their revenue or costs surpasses the equivalent of 2 million EUR in the previous year. This means for smaller businesses there is a considerable tax relief. This responsibility is triggered from the month following the month in which revenue or costs occur, within the important accounting regulations, subject to if the accounting records exceeds that amount. The taxpayer will have the responsibility to create the documentation relating to the dealings that have a major effect on the level of its income or losses. These will be predominantly dealings of a joint value of more than 50,000.00 EUR in a given tax year. This threshold will be increased when the limit of income and non-deductible operating expenses of the reporting entities increases in relation to the relevant procedure provided within the Act, from the aforementioned figure of 50,000.00 EUR, up to 500,000.00 EUR, when a taxpayers revenue exceeds 100 million EUR.

To summarise, the limitations for taxpayers whose revenues:

• exceeds more than 2 million EUR, but is not more than 20 million EUR, the transfer limit has been set at 50,000.00 EUR plus 5,000.00 EUR for each 1 million EUR over the original 2 million EURO;
• exceeds more than 20 million EUR, but is not more than 100 million EUR, the transfer limit has been set at 140,000.00 EUR plus 45,000 EUR for each 10 million EUR over the original 20 million EUR;
• exceeds more than 100 million EUR, the transfer limit has been set at 500,000 EUR.

Within this new documentation, the taxpayers with income or costs which exceed 10 million EUR is required to create qualified analyses establishing legitimate proof that the prices applied in their transactions are set according to arm’s length principles. This is one of the most important changes in relation to the documentation requirements existing to date. Businesses within a capital group (i.e. which, among other things, according to the new regulations, are linked by more than 25% of capital, whereas this figure was previously 5%), will be expected to document not only precise transactions, but also the fact when these transactions took place. While, in theory, tax authorities will still need that the transfer pricing documentation be submitted within 7 days of such a demand being served, the information provided earlier, about the possible capital ties, might be something that extremely affects businesses.

A taxpayer has an responsibility to create tax documentation (if their income respectively costs, within the important accounting regulations, exceed, in the given tax year, the equivalent of 10 million EUR), will also have to provide on the annual tax return, for a given tax year, a simplified statement concerning transactions with any affiliated companies or other events that arise between affiliates, or due to which amount is paid directly or indirectly to an entity that has its place of residence, seat, or the management board in a territory or country that employs damaging tax practices. This simplified statement, and also declaration, should be filed using forms provided by The Minister of Finance. It is clear that cases in which financial statements of taxpayers paying CIT are approved, subsequent to the date on which the tax return is filed, will be very challenging.

Source: Wydawnictwo Wiedza i Praktyka Sp. z o.o. (August 2015)