On 18 May 2021 The Director of the National Tax Information issued an individual interpretation (ref. 0111-KDIB2-1.4010.54.2021.2.MK) concerning the determination of whether
- a) the Medical University and the Applicant, for which the Medical University is the forming entity
- b) the Applicant and the Clinical Hospitals for which the same Medical University is the founding body
are related entities and whether there is an obligation to prepare transfer pricing documentation in this regard.
The Applicant is an Independent Public Health Care Institution. The forming entity for the Applicant is a Medical University. The Applicant has an influence on the management of the Hospitals through the appointment of the manager, appointment and dismissal of the social council, which is the initiating and opinion-making body of the creating entity and advisory to the manager.
The Medical University is the Founding Entity also for other Clinical Hospitals, with which the Applicant is linked by mutual agreements, among others for the provision of medical services (specialist consultations and medical examinations).
The diagram below presents the relationship between the entities.
Diagram. Shape of the relationship between entities
In the opinion of the tax authority, the Applicant, being an Independent Public Health Care Institution, has a significant influence on the operation of both the Medical University and the Clinical Hospitals.
Actual ability means the ability to influence key economic decisions both through the exercise of formal functions in a related entity, as well as the actual possibility of such influence without formal authorization, which was presented in the facts described above.
In view of the above, the Applicant and the Medical University and Clinical Hospitals should be considered related entities within the meaning of Art. 11a (1) (4) of the Corporate Income Tax Act.
At the same time, in accordance with Article 11b point 3 of the Corporate Income Tax Act, the provisions of chapter 1a Transfer pricing do not apply to transactions carried out between the Medical University and a medical entity as defined in the Act of 15 April 2011 on medical activity, so transactions carried out between the Independent Public Health Care Institution (the Applicant) and the Medical University are exempt from the obligation to prepare transfer pricing documentation.
In the above case, the taxpayer is not subject to any transfer pricing obligations, i.e. it is also exempt from the need to submit the TPR-C information and the management board statement.
The situation is different with respect to transactions carried out between the Independent Public Health Care Institution (the Applicant) and the Clinical Hospitals because in this case the documentation obligation must invariably be analyzed.
In the above case, the taxpayer may analyze the possibility of taking advantage of the exemption from the obligation to prepare transfer pricing documentation under Article 11n Section 1 of the Corporate Income Tax Act (the so-called “domestic exemptions”).
Author: Beata Rawa – Transfer Pricing Manager