29 April 2020 The Director of National Treasury Information issued an individual interpretation as to whether the Company is obliged to prepare transfer pricing documentation for transactions with its foreign plant.
In the described facts, the Applicant opened a branch in Senegal. The established branch is a company within the meaning of Article 4a(11) of the Corporate Income Tax Act and is also registered in Senegal. Poland has also not concluded a double taxation agreement with Senegal.
The tasks of the branch include commissioning geological surveys, selecting sites for extraction, supervising extraction, organising screening and drying, transport, supervising storage in the port and loading of goods and seeking new business partners.
In the opinion of the Applicant, the Company will not be obliged to prepare transfer pricing documentation, as from the point of view of the provisions of the Income Tax Act, the Company, as well as its branch, is one entity subject to taxation on all income earned in Poland. According to the Applicant, the company may take advantage of the exemption from the obligation to prepare transfer pricing documentation pursuant to Art. 11n(1) of the Corporate Income Tax Act.
According to art. 11n sec. 1 of the Corporate Income Tax Act, this obligation does not apply to transactions concluded exclusively by affiliates having their residence, registered office or management in the territory of the Republic of Poland in the tax year in which each of these affiliates meets the following conditions jointly:
a) does not benefit from the exemption referred to in Article 6,
(b) does not benefit from the exemption referred to in Article 17(1)(34) and (34a),
(c) has not suffered a tax loss;
In the opinion of the tax authority, the Applicant’s interpretation is incorrect, as pursuant to Article 11a(1)(4) of the Corporate Income Tax Act, the applicant is considered as related entities:
a) entities of which one entity has a significant influence on at least one other entity, or
b) entities over which it exercises significant influence:
– the same other entity, or
– a spouse, relative or relative up to the second degree of affinity of an individual exercising significant influence over one or more entities, or
c) a company without legal personality and its members, or
d) the taxpayer and its foreign establishment, or in the case of a tax group, its constituent capital company and its foreign establishment.
Moreover, according to the wording of the quoted Article 11n of the Corporate Income Tax Act, the basic prerequisite for the application of the exemption from the obligation to prepare local transfer pricing documentation is that the entities (within the meaning of Article 11a(1)(2) of the Corporate Income Tax Act) are domestic entities.
Transfer pricing regulations treat a foreign company as a separate entity, which results directly from art. 11a sec. 1 point 2 of the Corporate Income Tax Act. However, Article 11a Section 1 point 4(a) of the Corporate Income Tax Act requires the company and its foreign plant to be treated as related entities.
Author: Beata Rawa – Transfer Pricing Manager