On 23 April 2020 Director of National Treasury Information issued an individual interpretation (ref. 0111-KDIB1-3.4010.101.2020.1.IM) to determine whether an entity which did not incur a tax loss in a tax year should be understood as an entity which did not incur such a loss from that source of revenue under which transactions with that entity are taxed.
The Applicant’s doubts concerned the scope of exemption from the obligation to prepare local transfer pricing documentation pursuant to Art. 11n.1 of the Corporate Income Tax Act, in a situation where the Company incurred a tax loss as part of capital gains as a separate source of income, while the Company obtained tax income from other sources of income, in the scope of determining whether an entity which “did not incur a tax loss” in a tax year should be understood as an entity which did not incur such loss from that source of income, under which transactions made with that entity are taxed.
Let us recall that pursuant to Article 11n(1) of the Corporate Income Tax Act, the obligation to prepare local transfer pricing documentation does not apply to controlled transactions concluded exclusively by affiliates having their residence, registered office or management in the territory of the Republic of Poland in the tax year in which each of these affiliates meets jointly the following conditions:
- does not benefit from the exemption referred to in Article 6 (tax-exempt entities),
- does not benefit from the exemption referred to in Article 17, catalogue of tax exemptions in paragraph 1 points 34 and 34a,
- has not suffered a tax loss.
In the opinion of the tax authority, in Art. 11n.1 of the Corporate Income Tax Act, which contains the prerequisites for exemption from the obligation to prepare local transfer pricing documentation, the legislator indicated, inter alia, that he did not incur a tax loss. It follows from the wording of the said provision that the obligation to prepare local transfer pricing documentation does not apply to controlled transactions concluded by entities having their registered office in the territory of the Republic of Poland, which, inter alia, did not incur a tax loss.
As regards the issue of not incurring a tax loss, referred to in Article 11n(1)(c) of the Corporate Income Tax Act, it should be stated that the condition concerning the exemption from the preparation of transfer pricing documentation should be considered to be met when none of the related entities which are parties to the controlled transaction has incurred a loss from the source of revenue to which the transaction belongs (assuming that the other conditions necessary for the application of the domestic exemption listed in Article 11n(1) of the Corporate Income Tax Act are met).
The absence of the obligation to prepare transfer pricing documentation referred to in Article 11n(1)(c) of the Corporate Income Tax Act should be determined on the basis of the loss from the source of income to which the transaction subject to this obligation belongs. If the transaction concerns a specific source of revenue, it should be examined whether the taxpayer incurred the loss only from that source. At the same time, the occurrence of a loss from another source of income is in this situation irrelevant.
To sum up, an entity which “did not suffer a tax loss” in a tax year should be understood as an entity which did not suffer such a loss from that source of revenue, under which transactions made with that entity are taxed.
Author: Beata Rawa – Transfer Pricing Manager
