On 18 November 2020. The NSA issued a judgment (II FSK 1949/18) repealing the appealed verdict of the WSA in its entirety and referring the case for re-examination.

In the factual state described above, the company (the applicant) conducted business activity in the sale of used trucks. By a decision dated 27.09.2017. The Head of the Provincial Tax Office determined the applicant’s corporate income tax liability for 2011 in the amount of PLN 350,454. concluding that conditions were established between the entities that differed from the conditions that would be established between independent entities. As a result of the tax audit, it was found that in 2011 the applicant understated its revenue by PLN 489,318.97 as a result of reducing the amount of the commission it charged to related parties when it granted them sureties on bank loans. In the light of the findings, the rate of remuneration adopted by the applicant, amounting to 0.25% per quarter on the guaranteed loan balance, is far from the market value of this type of service in 2011. Based on the data from 5 banks, which charged between 0.25% and 0.75% per quarter on the amount of the guaranteed loan, the authority calculated the arithmetic average and indicated that the average commission for the provision of surety in 2011 is 0.59% per quarter, so that the rate of 0.25% applied by the applicant deviates from that applied by independent entities.

The Head of the IAS found that the terms agreed between the entities differed from the terms that would be agreed between independent entities, pointed out that the applicant used an external comparison of commission rates on the basis of information from one bank only, whereas it should have taken into account a range of market values, and stressed that the tax records for 2011, which included income from the provision of sureties, were not kept up to date and the rate adopted by the party was not the market rate applicable in 2011.

The applicant filed a complaint with the WSA, requesting that the decision of both instances be reversed. In response to the complaint, the IAS Director filed a motion to dismiss the complaint and upheld his previous position. In the judgment of 8 March 2018, ref. I SA/Ol 88/18, the Provincial Administrative Court in Olsztyn dismissed the applicant’s complaint against the decision of the Director of the Tax Chamber in Olsztyn. The applicant filed a cassation appeal against the above judgment with the NSA, challenging the judgment in its entirety and accusing the judgment of violating substantive law by misinterpreting its provisions. The NSA decided that the cassation appeal deserved to be taken into account.

The key issue in the case was to determine whether, in the factual state of the case established in the course of tax proceedings, the provision of Article 11 of Ustawa o.p.d.o.p. in force in the legal state of 2011 would apply. This provision is applicable if three conditions are cumulatively met:

1) existence of links between counterparties referred to in Article 11(1)(1-3) or in paragraph 4(1) or (2) of the A.l.t.d.o.p;

2) influence of these connections on establishment or imposition of conditions, which differ from conditions that would be established between independent entities;

3) non-reporting of income by the taxpayer or reporting lower income than that which could be expected if there were no connections mentioned above.


Fulfilment of these three conditions allows the authority to implement the procedure of determining income by way of estimation, in the manner indicated in Article 11.2 or 11.3 of the A.l.t.p. The first condition was met, the second condition required a determination whether the conclusion of a given agreement corresponds to market conditions or is rather the result of an intra-group decision. In the NSA’s view, the tax authorities’ analysis of the evidence gathered in the case does not prove beyond dispute that the existing relationships between the companies had an impact on setting or imposing conditions which differed from those which would be set by independent entities in a situation where the remuneration set by the claimant for granting surety to affiliated entities was within the range of prices applied for this type of services by independent entities. It was stressed that in the present case, reference should be made to paragraph 3.62 of the OECD guidelines, according to which the full range of results obtained in the benchmarking exercise can be considered as a range of market outcomes, but in certain situations, it cannot be excluded that some imperfections may have occurred in the analysis process, distorting the full comparability of the sample, despite the fact that every care was taken in the selection of the data. Such imperfections may result from differences between the transactions analyzed, which could not be identified on the basis of available information, or from the fact that information on transaction conditions was limited. Polish legislator accepted as a basis the general rule resulting from OECD guidelines, i.e., market value of remuneration is determined on the basis of the lowest remuneration that a given entity would have to pay to an independent entity for services in comparable conditions.

To sum up, it was assumed that if the remuneration determined by affiliated entities is within the range of prices applied for such services by independent entities, there are no grounds to question the determined remuneration. Taking into account that the margin accepted by the claimant for loan sureties is within the range of margins applied by independent entities, it must be acknowledged that, in the case under consideration, the tax authorities had no grounds for applying Article 11(1)-(2) of the AOFP and § 21(1) of the Regulation of the Minister of Finance, which means that, in consequence, § 6(1)-(4) and § 12(1) of the Regulation of the Minister of Finance were also breached. The appealed judgment has been repealed in its entirety.


Author: Magdalena Świątkiewicz – Tax consultant