On 18 March 2020 Director of National Treasury Information issued an individual interpretation (ref. 0111-KDIB1-2.4010.502.2019.2.BD) to determine whether transactions consisting of sale/acquisition by the Bank of investment certificates of the Funds for the purpose of redemption are subject to transfer pricing regulations, in a situation where the amount of the price for transactions with related parties results from the Act on Funds or from the Articles of Association or there are no detailed regulations in this respect.
The applicant is a Polish bank operating in the form of a joint stock company, being a Polish tax resident. One of the Bank’s activities is to acquire investment certificates issued by investment funds authorised to do so under the Act on Investment Funds and Management of Alternative Investment Funds of 27 May 2004, through Towarzystwo Funduszy Inwestycyjnych (hereinafter: TFI). At the same time, the Bank is the sole shareholder of TFI. Therefore, there are links between the Bank and TFI, referred to in Article 11a of the Corporate Income Tax Act.
In the individual interpretation issued, the tax authority confirmed the Applicant’s position that the transaction consisting in the sale by the Bank of investment certificates to a Closed-end Investment Fund (hereinafter: FIZ) for the purpose of their redemption is not subject to the provisions of Chapter 1a of the Corporate Income Tax Act concerning transfer prices pursuant to Article 11b(1) of the Corporate Income Tax Act, due to the fact that the method of determining the redemption price by FIZ of these certificates is strictly defined by the provisions of the Act on Funds. The tax authority also confirmed the taxpayer’s position that the transaction consisting in the sale by the Bank of investment certificates to FIZ sub-funds for redemption purposes is not subject to the provisions of Chapter 1a of the Corporate Income Tax Act concerning transfer prices pursuant to Article 11b(1) of the Corporate Income Tax Act, due to the fact that the method of determining the redemption price of these certificates by FIZ sub-funds is strictly defined by the provisions of the Act on Funds.
To sum up, pursuant to Article 11b(1) of the Corporate Income Tax Act, the regulations contained in Chapter 1a of the Corporate Income Tax Act with respect to transfer pricing do not apply to controlled transactions in which the price or method of determining the price of the subject of the controlled transaction results from the provisions of acts or normative acts issued on their basis.
At the same time, the tax authority did not agree with the taxpayer’s standpoint that transactions consisting in the sale/acquisition by the Bank of investment certificates of the Funds for the purpose of their redemption are not subject to transfer pricing regulations, in a situation where the amount of the price relating to transactions with related entities results from the statutes or there are no detailed regulations.
In the opinion of the tax authority, a transaction in which the price is set in a manner resulting from the Articles of Association or there are no detailed regulations governing it is not covered by the standard already quoted in Article 11b(1) of the Corporate Income Tax Act.
To sum up, the provisions of Chapter 1a will be applicable to transactions involving the purchase/acquisition of investment certificates whose price (the manner in which it is determined) is not determined by law and results from the provisions of the articles of association or there are no relevant regulations directly determining them, and thus such transactions are subject to the obligation to prepare transfer pricing documentation.
Author: Beata Rawa – Transfer Pricing Manager
