On 17 December 2020. Director of National Tax Information issued an individual interpretation (ref. 0111-KDIB1-1.4010.372.2020.3.BS) to determine whether the provisions of Article 12(3j) and Article 15(4i) of the Corporate Income Tax Act will apply to the adjustments described in the application issued in January or February 2021.
In the described facts, the Company conducting business activity in the territory of Poland signed an agreement with an affiliate being another capital company for the sale and purchase of raw materials, semi-products and products. The Company and the affiliated entity are Polish corporate taxpayers. Sales and purchases resulting from this contract are subject to the basic VAT rate. In accordance with the provisions of the contract, sales prices being the basis for issuing invoices for sales are established on the basis of planned costs with the addition of a margin and are calculated on the basis of an appropriate algorithm. The parties have agreed that at least once a year at the latest by the end of February of the following year sales prices for particular assortments will be corrected in order to ensure the possibility of setting prices on the basis of real costs and to eliminate possible errors that may arise during setting prices on the basis of planned prices.
In the Applicant’s opinion, the sales price adjustments described in the application both to the sales side and from the cost side do not constitute an adjustment of transfer prices referred to in art. 11e of the Corporate Income Tax Act, as they do not consist in a global margin adjustment but consist in the change of prices of particular assortments bought or sold by the Company.
Moreover, the Company indicated that on 19 December 2016 it received the interpretation of the Mark: 2641-IBPB-1-2.4510.957.2016.1BKD in an analogous state of affairs, that such adjustments should be accounted for on the basis of Article 12 section 3j and Article 15 section 4i.
The essence of the transfer pricing adjustment referred to in Art. 11e of the Corporate Income Tax Act consists in the market transaction being marketed as of the date of its conclusion, which has become non-marketable as a result of subsequent, significant circumstances. Circumstances significant from the point of view of transfer prices, which could not have been foreseen at the moment of planning the transfer price level for a given year, may include significant changes in market prices of basic raw materials or materials, exchange rate fluctuations, interest rate changes or significant fluctuations in demand or supply of a given product, caused by factors independent from the taxpayer and the affiliated entity.
In the opinion of the tax authority, the Applicant’s position on the legal assessment of the presented future event is incorrect and the described adjustments constitute adjustments within the meaning of Article 11e of the Corporate Income Tax Act of 15 February 1992.
It should be emphasized that not all conditions resulting from art. 11e of the Corporate Income Tax Act in the described facts were met. However, taking into account the content of art. 12 section 3aa of the Corporate Income Tax Act (income adjustment) and art. 15 section 1ab of the Corporate Income Tax Act (tax deductible cost adjustment), in order to apply art. 11e in plus it is sufficient to meet the first two conditions of art. 11e sections 1 and 2 of the Corporate Income Tax Act, whereas in order to apply art. 11e in minus – all conditions of art. 11e sections 1-5 of the Corporate Income Tax Act.
To sum up in the analyzed case, it should be considered that the transactions were marketed as of the date of their conclusion (i.e., they were concluded on terms that would have been set by unrelated entities) and then the transactions became non-marketable as a result of subsequent, significant circumstances. Therefore, it should be concluded that in the case in question, the corrections made by the Applicant constitute a correction within the meaning of Article 11e of the Corporate Income Tax Act.
Author: Magdalena Świątkiewicz – Tax Consultant