On 17 April this year, the European Commission presented its proposal to the European Parliament and the Council. The Director of National Fiscal Information issued an individual interpretation,  signature 0114-KDIP2-2.4010.73.2019.2.SJ, whose subject matter was the settlement of losses from previous years in the context of exemption from the obligation to prepare transfer pricing documentation.

In the presented factual state of affairs, the company conducts business activity within the framework of which it executes transactions with a related entity having its registered office in the territory of the Republic of Poland. Both entities achieve profit from their business activity and do not incur economic loss, while the applicant settles the tax loss from previous years, i.e. incurred in 2016.

Pursuant to the amending Act of 23 October 2018 amending the Personal Income Tax Act, the Corporate Income Tax Act, the Tax Ordinance Act and certain other acts (Journal of Laws of 2018, item 2193), one of the prerequisites for exemption from the obligation to prepare local transfer pricing documentation is the conclusion of transactions by entities having their registered office, place of residence or management in the territory of the Republic of Poland, in which each of these related entities meets the following conditions:

  • does not benefit from the exemption referred to in Article 6,
  • does not benefit from the exemption referred to in Article 17, section 1, subsections 34 and 34a,
  • has not suffered a tax loss.

Under the literal interpretation, the legislature makes the exemption from the obligation conditional on the absence of a tax loss and not on its settlement as a settlement of a loss from previous years.

The condition of not incurring a tax loss therefore applies to a given tax year, for which the obligation to prepare local transfer pricing documentation is examined.

The provision of Article 11n(1) does not refer to any time limits.

To conclude, if the conditions specified in CIT Act Art. 11n(1), are met and the taxpayer does not incur a tax loss at the end of the tax year, but only settles the loss from previous years, he is not obliged to prepare local transfer pricing documentation. Therefore, the exemptions provided for in CIT Act Art. 11n(1), do not affect the settlement of losses from previous years.

Author: Beata Rawa – senior tax consultant

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