In an individual interpretation of 4 August 2020. The Director of the National Revenue Information Office (KRIiK) stated that the mechanism used by the Company to increase its tax revenues or increase tax deductible costs on the basis of an accounting document other than an adjusted invoice (e.g. an accounting note) issued due to the transfer pricing adjustment in the tax year meets the requirements of the transfer pricing compensation adjustment and thus complies with Article 11e of UCIT.

The possibility to make transfer pricing adjustments appeared with the introduction of Article 11e to the CIT Act from 1 January 2019 regulating the consequences and principles of transfer pricing adjustments, according to which a taxpayer may include transfer pricing adjustments in its tax return by changing the amount of obtained income or incurred tax deductible costs if all the following conditions are met:

In controlled transactions carried out by the taxpayer during the tax year, conditions were established which would be set by unrelated entities,

(2) there has been a change in material circumstances affecting the conditions established during the tax year or the actual costs incurred or revenues received as the basis for calculating the transfer price are known, and to ensure their compliance with market conditions requires an adjustment of the transfer prices,

(3) At the time of the adjustment, a taxpayer has a statement from a related party that the related party has adjusted its transfer prices in the same amount as the taxpayer,

The related entity, referred to in point 3, has a place of residence, seat or management on the territory of Poland or in the country or territory with which Poland has concluded a double taxation convention and there is a legal basis for the exchange of tax information with that country,

(5) the taxpayer will confirm the transfer pricing adjustment in its annual tax return for the tax year to which the adjustment relates.

However, pursuant to Article 12(3aa), the amount of revenue shall be taken into account:

(1) A transfer pricing adjustment which reduces revenue in order to meet the requirements of Article 11c by correctly applying the methods referred to in Article 11d(1) to (3) which meet the conditions set out in Article 11e(1) to (5);

(2) transfer pricing adjustments increasing revenue in order to meet the requirements referred to in Article 11c, through the correct application of the methods referred to in Article 11d(1) to (3) which meet the conditions referred to in Article 11e(1) and (2).

The Company indicated that the applied adjustment of transfer prices from the technical side is carried out as an adjustment of the financial result itself, through a collective change in the amount of revenues or costs (and not the prices of individual goods/services) carried out before submitting the tax return. The adjustment may be made “in plus” or “in minus”, i.e. to increase the financial result by increasing revenues or decreasing costs respectively, or to decrease the financial result by decreasing revenues or increasing costs.

Additionally, pursuant to the provisions of Article 11c(1) of the CIT Act, the Company is obliged to apply market prices also during the year, according to the best knowledge and experience. The Company shall demonstrate compliance of the applied prices with the market price principle, in particular that the arm’s length principles were observed at the transaction planning stage and the financial assumptions of the transaction themselves are of market nature. In addition, the company should prepare appropriate transfer pricing documentation supported by a comparative analysis presenting the principles of price calculation and justifying the choice of the method and financial indicator analysed. The level of profitability that the company should achieve for a given financial year results from an appropriate comparative analysis.

In light of the above, the tax authority decided that the future event indicated by the Company meets the requirements to make a transfer pricing adjustment in accordance with art. 11e of UCIT.

Let us remind that the tax authorities will still have the right to challenge the adjustment under art. 11c sections 1 and 2 of the CIT Act if there are premises for stating that the taxpayer, e.g. deliberately applied prices during the year that deviated significantly from the market level and, e.g. in case of a significant change in market conditions, did not adjust the level of such prices during the year.


Author: Izabela Lipka – Tax consultant