On 1 June 2020 Director of the National Revenue Administration issued an individual interpretation (ref. 0111-KDIB1-1.4010.140.2020.1.BK) regarding the exemption from the obligation to prepare local transfer pricing documentation pursuant to Article 11n point 1 of the Corporate Income Tax Act.
In the described facts, the Applicant is a company specializing in wholesale trade in goods (including scrap metal, metal). The Applicant is a member of a tax capital group within the meaning of the Corporate Income Tax Act.
The Applicant, in accordance with the agreement on the establishment of a tax capital group (hereinafter: PGK) is a parent company and represents PGK within the scope of obligations resulting from the Corporate Income Tax Act and Tax Ordinance.
Within the framework of the cooperation, the Applicant concludes controlled transactions – within the meaning of the provisions of the Corporate Income Tax Act – with related entities which are members of PGK as well as with related entities which are not members of PGK.
Both the Applicant and the Affiliated/Dependent Companies separate two sources of income:
a) income from capital gains (referred to in Art. 7b of the Corporate Income Tax Act) and
(b) revenue from other sources of income.
At the same time, the Applicant and the affiliated companies have their seat in the territory of the Republic of Poland and do not benefit from the exemption referred to in art. 6 of the Corporate Income Tax Act and from the exemption referred to in art. 17 par. 1 point 34 and 34a of the Corporate Income Tax Act.
The subject of consideration is a situation in which the Applicant or an affiliated company concluding a controlled transaction with the Applicant shows an income in one of the sources (to which these transactions are included) and a loss in the other source in terms of determining whether such a transaction will be able to benefit from the exemption from the obligation to prepare local transfer pricing documentation pursuant to art. l1n point 1 of the Corporate Income Tax Act.
As far as tax capital groups are concerned, the obligation to prepare transfer pricing documentation does not lie with the group but with related entities belonging to the tax capital group. Thus, the scope of the documentation obligations as well as the scope of exemptions from those obligations should be considered from the perspective of individual related entities and not from the perspective of the tax capital group as a corporate income tax payer.
As of 1 January 2018, as a result of the amendment of Article 7(1) and (2) of the Corporate Income Tax Act, the revenues of corporate income tax payers were divided into two sources of income: capital gains and other sources of income. In relation to each of the sources, revenues and costs of obtaining them are assigned separately.
At the same time, the wording of the provisions of Article 7.1 and 7.2 of the Corporate Income Tax Act, as well as Articles 21, 22 and 24b of the Corporate Income Tax Act indicates that the legislator has separated the possibility to transfer tax costs between two different sources of income (from capital gains and other sources) and established that a taxpayer may incur a tax loss on each source separately.
In the opinion of both the Applicant and the tax authority, the condition for exemption from the preparation of transfer pricing documentation for the Applicant should be considered to be met when none of the related parties to a controlled transaction has suffered a loss from the source of revenue to which the transactions belong.
Autor: Beata Rawa – Transfer Pricing Manager