On 11 January 2022, the Director of the National Tax Inspectorate issued an individual interpretation with ref. no. 0111-KDIB1-2.4010.335.2021.1.DP on determining whether the Company will be entitled to benefit from the exemption from the obligation to prepare transfer pricing documentation according to Article 11n point 4 and Article 11n point 1 of the CIT Act.
The Company represents TCG in the scope of obligations arising from tax regulations. The Company concludes controlled transactions with related parties who are members of the TCG and are not members of the TCG (Subsidiaries), the value of which exceeds PLN 500,000. At the same time, Subsidiaries may make settlements (conclude transactions) with tax heaven entities.
The Company’s doubts are raised by the issue of determining whether, in the case of concluding a controlled transaction with a Subsidiary (being or not a member of the PGK) exceeding the value of PLN 500,000, in a situation where this Company settles accounts with an entity established in a country applying harmful tax competition. Then the Applicant will be entitled to benefit from the exemption from the obligation to prepare transfer pricing documentation according to Article 11n point 4 of CIT and Article 11n point 1 of CIT, provided that the statutory conditions resulting from the regulations are met. The Company believes that it will be entitled to benefit from the exemption from the obligation in the field of transfer pricing documentation.
The beneficial owner shall be presumed to have his domicile, registered office, or central administration in the territory or in a country applying harmful tax competition if the other party to the transaction settles accounts with a tax haven in the tax year or financial year. In determining these circumstances, the taxpayer is obliged to exercise due diligence.
On 1 January 2022, the provision of Article 11o(3) of CITentered into force, according to which the provisions of paragraphs 1-2 shall apply mutatis mutandis to companies included in the TCG in the scope of a controlled transaction or another transaction with entities not included in this tax capital group.
The amendment to the regulations (from 1 January 2021) from transfer pricing redefined the laws regarding transactions carried out with entities from the so-called tax havens. It introduces the concept of a transaction other than a controlled transaction. It extends the existing documentation obligations to transactions as a domestic entrepreneur receives payment from an entity located in a tax haven. What is more, the legislator also included in the documentation obligations transactions with unrelated entities if the Company’s contractor settles accounts with an entity operating under a harmful tax jurisdiction in a given year (presumption of the beneficial owner from a tax haven). New documentation thresholds were also introduced, set at PLN 100,000 respectively in the case of transactions with tax havens and PLN 500,000 with transactions in which the beneficial owner is located in a country or territory applying harmful tax competition.
Changes provide for the extension of the scope of transactions requiring documentation, in particular to uncontrolled sales transactions, as a result of which payment of receivables from the tax heaven entity is received, controlled transactions or transactions other than controlled transactions if the beneficial owner has tax residence in a tax haven. The legislator intended to extend the scope of transactions subject to verification, not narrow them down.
In the opinion of DNTI, taking into account the assumption rationality of legislator and principle of equity. It can not be agreed with the Applicant that since Article 11n cit does not contain exemptions with controlled transactions, which are subject to the obligation to prepare transfer pricing documentation according to Article 11o CIT, the case of
concluding the subject transactions. In trade, the Applicant will benefit from the exemption. The lack of reference in the statutory provisions may not figure that Article 11n will not apply to Article 11o of cit.
To sum up, the transfer pricing obligation in the case of companies included in the TCG applies only to controlled and non-controlled transactions with entities not included in the TCG. The Applicant refers to a controlled transaction concluded by the Applicant as a member of the TCG with another company belonging to the same TCG (when this Company settles accounts with a tax heaven entity), should be stated that in such a case, the documentation obligation (Article11o CIT) does not arise. Thus, it is impossible to apply for the exemption under Article 11n(4) of the CIT.
Concerning a controlled transaction (exceeding PLN 500,000 in the tax year per counterparty) concluded by the Company with a company not belonging to this PGK (when this Company settles accounts with a tax heaven entity). The Applicant will not be entitled to apply the exemption specified in Article 11n point 1 of CIT in the event of an obligation to prepare transfer pricing documentation resulting from Article 11o(1a), 1b CIT.
Author: Marta Kiryczuk – Tax Consultant