On 8 May 2020 Director of the National Revenue Administration issued an individual interpretation (ref. 0111-KDIB2-1.4010.55.2020.2.MK) to determine whether transfer pricing adjustments made by related parties will entitle the Company to adjust tax deductible costs pursuant to Article 15.1ab of the Corporate Income Tax Act in the tax year to which they relate.
Within the framework of conducted transactions, the Applicant and entities belonging to the Group will correct transfer prices in the scope of provided services, such as support and supervision services, logistics services, financial and accounting services, IT services, HR and payroll services and office services, purchasing department services, production support services and quality support services.
In some cases a given type of service is performed exclusively for the benefit of the Applicant, therefore the cost base is entirely assigned to the Applicant (this concerns quality support services, production support services and logistics services). As a result, the amounts in the cost base divided by the allocation key are increased by a margin which is set individually for each type of service.
Remuneration due to related parties for particular types of services is calculated during the year on the basis of estimated costs allocated to a given type of services, increased by a profit margin in accordance with the adopted methodology of determining transfer prices. After the settlement period determined by the parties, the parties to the transaction will make a final calculation of the remuneration due to affiliated entities based on actual costs. At the same time, the parties will verify the market nature of the remuneration. Thus, if a given related party achieves a profit on particular types of services above or below the assumed level, it will adjust the transfer prices for a particular type of service (i.e. an adjustment to the point/point/section agreed between the parties under the transfer pricing method). The transfer pricing adjustment will relate to the profitability of individual types of services.
At the same time the parties assume that all conditions necessary to make the adjustment pursuant to Article 11e of the Corporate Income Tax Act will be met.
Pursuant to the provision of Article 15 section 1ab of the Corporate Income Tax Act, in force since 1 January 2019, when determining the amount of tax deductible costs, account is taken of:
- a transfer price adjustment reducing the tax deductible costs in order to meet the requirements referred to in Art. 11c of the Corporate Income Tax Act by correct application of the methods referred to in Art. 11d sections 1-3 of the Corporate Income Tax Act, meeting the conditions referred to in Art. 11e sections 1 and 2 of the Corporate Income Tax Act,
- a transfer pricing adjustment increasing the tax deductible costs in order to meet the requirements referred to in Art. 11c of the Corporate Income Tax Act by correct application of the methods referred to in Art. 11d sections 1-3 of the Corporate Income Tax Act, meeting the conditions referred to in Art. 11e sections 1-5 of the Corporate Income Tax Act.
To sum up, in view of the cumulative fulfillment of the conditions set out in Article 11e of the Corporate Income Tax Act, the Company will be able to adjust the transfer prices within the meaning of Article 15 section 1ab of the Corporate Income Tax Act by changing the amount of tax deductible costs incurred in the tax year to which these adjustments relate, provided that the conditions set out in the above provisions are fulfilled.
Author: Beata Rawa – Transfer Pricing Manager