The objective of the Project Supplier is to align national regulations with the acquis of the Organisation for Economic Cooperation and Development (hereinafter: “OECD”), as a result of which the draft of 16 July 2018 provides, inter alia, for the introduction of simplified settlement rules (safe harbours), the application of which by the taxpayer results in the recognition of the price or price element as marketable. This solution is the result of the work updating the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, published on 10 July 2017, which resulted in the development of sets of rules, the respect of which would automatically lead to the acceptance of transfer pricing by national tax administrations.

The use of simplified solutions by the taxpayer provides protection against the price questioning by the tax authority, and at the same time constitutes an exemption from documentation obligations to a large extent. Simplified arrangements are foreseen for two types of transactions, i.e. loans and low value-added services.

Safe harbour for low-value-added services

Until now, legal acts of statutory rank did not contain a definition of legal services with low added value, however, due to the fact that the so-called safe harbours for the services in question were included in the Project, it was justified to clarify their meaning at the same time. In accordance with the introduction of Article 11f(2): “Low-value added services are services which:

1) are listed in Attachment No. 4 or are services of a similar nature;
2) are of the nature of services supporting the business activity of the service user;
3) do not constitute the core business of a group of related entities;
4) are not provided by the service provider to unrelated parties;
5) they are not further resale by the customer, with the exception of the resale of services purchased in the customer’s own name, but to another related party (re-invoicing).

Introduction of simplified solutions in favour of services with low added value is aimed at ensuring that the tax authority will refrain from estimating the amount of the mark-up in transactions meeting the requirements specified by the Project Supplier. At the same time, pursuant to the introduced Article 11 of the CIT Act and Article 23 of the PIT Act, respectively, taxpayers applying the principles referred to in Article 11f of the CIT Act to services with low added value will be exempted from the obligation to include in transfer pricing documentation an analysis of comparative data aimed at justifying the amount of profit margin applied to costs in the said transaction executed between affiliated entities.

The introduction of safe harbours should be seen as a positive change, reducing the administrative burden related to the preparation of comparative data analyses. On the other hand, in order to benefit from this privilege, the taxpayer must indicate the type and amount of costs taken into account in the price calculation, as well as the manner of applying and justifying the choice of allocation keys for all entities using the services in question. The Project justification indicates that it will not be sufficient to indicate e.g. only general cost categories (e.g. operating costs, salary costs) without additional specification and information on the relation of these costs with services with low added value.

The project proponent shall specify ‘safe‘ levels of the profit margin to be used in the transactions in question:

– no more than 5% of costs – in case of purchase of services,

– not less than 5% of the costs in the case of providing services.

It should be stressed that the level of mark-up of 5% of the cost base implements the recommendations contained in the OECD Guidelines[1]  and the results of the work of the Joint Transfer Pricing Forum in the area of low value-added services[2].

[1] Punkt 7.61 Wytycznych OECD z lipca 2017 r.

[2] Komunikat Komisji do Parlamentu Europejskiego, Rady i Europejskiego Komitetu Ekonomiczno-Społecznego w sprawie prac Wspólnego Forum UE ds. Cen Transferowych w okresie od kwietnia 2009 r. do czerwca 2010 r. i związanych z nimi propozycji: 1. Wytycznych w sprawie usług o niskiej wartości dodanej świadczonych wewnątrz grup i 2. Potencjalnych podejść do spraw trójstronnych poza UE, Dodatek I, punkt 65 (Bruksela, dnia 25.1.2011, KOM(2011) 16).

Author: Paula Arciszewska – Senior tax consultant