1. Introductory information
As of 1.1.2019, the Corporate Income Tax Act (hereinafter referred to as: “uCIT”) changed the method of identification of intra-group transactions subject to the documentation requirement from one type of transactions and events to homogeneous controlled transactions. Despite the name change, there are still doubts about how to divide transactions into types and how to combine individual transactions similar in nature, purpose and price calculation.
Controlled transaction means activities of an economic nature identified on the basis of the actual behaviour of the parties, including the assignment of income to a foreign establishment, the terms of which have been established or imposed as a result of the links.
The legislator in uCIT indicated that affiliated entities are required to prepare local transfer pricing documentation for the financial year in order to demonstrate that transfer pricing was established on terms and conditions that would have been established between unrelated entities (Art. 11k(1) of uCIT).
Local transfer pricing documentation is prepared for a controlled transaction of homogeneous nature, whose value, less value added tax, exceeds the following documentation thresholds in a financial year:
- PLN 10 000 000 – in case of a commodity transaction;
- PLN 10,000,000 – in case of a financial transaction;
- PLN 2,000,000 – in case of a service transaction;
- PLN 2,000,000 – in case of a transaction other than specified in items 1-3; the limit concerns events, which are not defined as a transaction according to the wording of the Polish language dictionary.
2. Identification of homogeneous controlled transaction between related entities
When identifying a homogeneous controlled transaction between related parties, reference should be made to the nature of the given transaction, i.e. to
- general course of the transaction,
- the functions of the parties to the transaction,
- of the assets involved,
- the risks incurred,
- economic conditions existing at the place and time of the transaction,
- of economic strategy,
- the transfer pricing verification method used,
- other relevant circumstances.
3. Basis for calculating the value of a controlled transaction
The value of the transaction controlled in the first place is determined on the basis of received or issued invoices.
If no invoices are issued, the transaction value is determined on the basis of contracts or other documents.
If the transaction is not based on contracts or other documents, the transaction value shall be determined on the basis of payments received or forwarded.
The types of transaction and the basis for calculating its value are presented in the table below.
Up to the documentation threshold, the taxpayer should take into account the net value of the transaction.
If the value of a controlled transaction is expressed in a foreign currency, it shall be converted into zlotys according to the average exchange rate announced by the National Bank of Poland (NBP), applicable on the last working day preceding the day of execution of the economic operation or conclusion of the agreement.
Author: Anna Michalak – tax assistant