On 23 October 2018, the Director of the National Fiscal Information issued an individual interpretation No. 0111-KDIB1-1.4010.336.2018.1.ŚS, concerning the obligation to prepare transfer pricing documentation.

The application for an interpretation was submitted by a company whose main activity will be agricultural activity as defined in Article 2(2) of the Corporate Income Tax Act of 15 February 1992 (Journal of Laws of 2018, item 1036, as amended, hereinafter referred to as the “CIT Act”), as well as non-agricultural activity.  Revenues from agricultural activity, to which, in accordance with Article 2(1) of the CIT Act, the provisions of the CIT Act are not applied, will constitute the majority of all revenues in a year. Other revenues will include rents from rental of real estate and derivatives of basic (agricultural) activity, bank interest, resale of materials, goods, services, sale of fixed assets. The Company will derive a part of the aforementioned other revenues from transactions with affiliated entities within the meaning of Article 11 sections 1 and 4 of the CIT Act, the value of which will exceed the amounts specified in Article 9a section 1d point 1 of the CIT Act. The applicant will separately determine the income from agricultural and non-agricultural activity.

In connection with the above facts, the company asked a question – will it be necessary for the applicant conducting agricultural and non-agricultural activity to prepare the documentation referred to in Article 9a(1) of the Corporate Income Tax Act?

In the Company’s opinion, it will not be obliged to do so, as pursuant to Art. 9a.1 of the CIT Act, its revenues or costs within the meaning of the accounting regulations, which affect the determination of the tax base pursuant to the CIT Act, will not exceed EUR 2,000,000.

The tax authority considered this position incorrect, arguing that it follows from Article 9a(1) of the CIT Act cited above that revenues and costs within the meaning of the Accounting Act (and not the Corporate Income Tax Act), which are determined on the basis of accounting records, should be taken into account when determining the limit of EUR 2,000,000 referred to in this provision. The director of KIS further explained that therefore, the Applicant is obliged to record in the accounting books all income and costs achieved, including those from agricultural activity (to which the CIT Act does not apply), then the limit of EUR 2,000,000, referred to in Article 9a(1) of the CIT Act, should also include income and costs from agricultural activity obtained by the Applicant.

In the opinion of ICT, such a position of the tax authority is contra legem. First of all, it should be pointed out that in accordance with Article 2(1)(a) of the Act of Accession, it is necessary to include the following items in the assessment of ICT According to Article 2(1) of the CIT Act, the provisions of this Act do not apply to income from agricultural activity, with the exception of income from special sections of agricultural production. This means that revenues from agricultural activity are not only excluded from taxation, but are not subject to any provisions of the CIT Act. Thus, tax regulations concerning transfer pricing, and therefore also the CIT Act, including Article 9a(1) from which the authority derives the documentation obligation, will not apply to revenues from agricultural activity. A contrario, this article applies to revenues of a company other than from agricultural activities, and these do not exceed the limit of EUR 2 000 000. In conclusion, it should be stated that the applicant is not obliged to prepare tax documentation due to the exclusion from the provisions of the Act, income from agricultural activity, with the exception of income from special departments of agricultural production (Article 2(1)(1) of the CIT Act) and the actual situation in which income or costs of non-agricultural activity (Article 9a(1d)(1d) of the CIT Act) do not exceed EUR 2,000,000.

Considering the above, it should be concluded that the position of the Director of KIS is incorrect.

Author: Paweł Rosiński ? Tax consultant, tax advisor entry number 13 408