Article 11d of the amended Corporate Income Tax Act sets out a catalogue of methods that can be used by tax authorities and taxpayers to verify the transfer price in order to ensure that it is at a level that would be determined by unrelated entities.
In addition to the five basic methods, i.e. the comparable uncontrolled price method, the resale price method, the cost plus method, the net transaction margin method and the profit distribution method, the provisions will allow the use of other methods of transfer pricing calculation, including valuation techniques.
In the explanatory memorandum to the Corporate Income Tax Act of 23 October 2018 as an example of the application of valuation techniques, the legislator cites an example of a real estate sale transaction in which, due to the lack of sufficiently comparable objects of transaction, there is no practical possibility to determine and subsequently verify the transfer price in a manner other than through the valuation of an expert. As explained in the explanatory memorandum, such a valuation, prepared by an expert, does not meet the criteria for considering the valuation as one of the 5 basic methods.
In the opinion of ICT, such a position of the legislator is contra legem. First of all, it should be pointed out that the valuation of real estate through the valuation of an expert can be applied to the method of a comparable uncontrolled price.
According to § 11 (1) of the Regulation of the Minister of Finance on transfer pricing in the scope of corporate income tax, the comparable uncontrolled price method consists in comparing the price of the subject of the controlled transaction with the price applied in comparable transactions by unrelated entities and on this basis determining the market value of the subject of the controlled transaction. This comparison is made on the basis of prices applied by a given entity on a given or comparable market in transactions with independent entities (internal price comparison) or on the basis of prices applied in comparable transactions by other independent entities (external price comparison).
The Real Estate Management Act gives the valuer the possibility to choose the calculation method, at the same time there is no correct estimation report formula resulting from the implementing act, but it is regulated what should be included in the document and what valuation methods are acceptable. There are four main valuation methods, including the comparative approach, which boils down to estimating the market value of the property on the basis of a list of premises meeting similar criteria.
Author: Beata Rawa – Senior tax consultant