7 October 2019 The Director of National Fiscal Information issued an individual interpretation (file 0111-KDIB1-3.4010.341.2019.1.APO), which concerned the obligation to prepare local transfer pricing documentation in case transactions with loss-making related entities are concluded – in the context of domestic exemptions from the obligation to prepare tax documentation.

The issued interpretation refers to future events in which the Applicant enters into transactions with many related entities concerning purchase and sale of IT services and equipment, lease of real estate and loans. None of the entities mentioned uses the exemptions referred to in Art. 6 of the Act on ITOP and Art. 17 sec. 1 items 34 and 34a of the Act on ITOP. The interpretation poses a question:

Does the obligation to prepare transfer pricing documentation apply to transactions with all related entities in the case when one of them incurred a tax loss in a given tax year or only to transactions with the entity which incurred the loss?

In the opinion of the KIS Director, the obligation to prepare transfer pricing documentation for transactions which do not meet the prerequisites of Art. 11n item 1 of the Act on ITOP exists only for those specific transactions, and not for all other transactions which could clearly indicate the Applicant’s links with the entity which suffered the loss in a given tax year. Therefore, the obligation to prepare documentation does not rest with the entity which concludes transactions with the entity not incurring the loss, but rests with the entity which concludes transactions with the entity with the tax loss.

Additionally, the interpretation indicates how the expression “an entity which did not incur a tax loss” should be understood. – should be understood as an entity which did not suffer any loss from the source of income, within the framework of which transactions made by the Applicant with that entity are taxed. If the transaction concerned a specific source – it is necessary to determine whether the taxpayer suffered a loss from that specific source of income. The occurrence of a loss from another source of income is irrelevant.

Sygn. 0111-KDIB1-3.4010.341.2019.1.APO

Author: Olga Kamińska ? tax assistant