Since January 1, 2019, slightly revised regulations have been in effect regarding the operations of related entities and transfer pricing documentation. The law has set new thresholds, changed the deadlines for preparing tax documentation, and clarified many important issues.
Which entities can be considered related?
As a result of the amended law, the structure of related entities has been significantly expanded. According to the new guidelines, entities considered related are divided into four groups:
- Entities related through exerting significant influence, determined by any understood capital, familial, or actual connections of individuals that could influence business decisions,
- Related entities as a partnership without legal personality, along with its partners,
- Permanent establishment, meaning related entities as an entity along with a foreign branch, where the thresholds for controlled transactions indicating their uniformity are exceeded, triggering the documentation obligation,
- Related entities based on fictitious ownership structures – meaning a situation where the presence of fictitious entities is observed, aiming to exclude the relationship between entities, they are unquestionably recognized as related entities.
In accordance with Article 11(1) and (4) of the Corporate Income Tax Act, the relationship between entities occurs when:
- a domestic entity (i.e., a natural person, legal person, or unincorporated organizational unit with a place of residence, registered office, or management in the territory of Poland) directly or indirectly participates in the management of an enterprise located outside the territory of Poland or in its control, or holds a share in the capital of that enterprise,
- a foreign entity (i.e., a natural person, legal person, or unincorporated organizational unit with a place of residence, registered office, or management outside the territory of Poland) directly or indirectly participates in the management of a domestic entity or in its control, or holds a share in the capital of that domestic entity, or
- the same natural person, legal person, or unincorporated organizational unit simultaneously directly or indirectly participates in the management of a domestic entity and a foreign entity or in their control, or holds a share in the capital of these entities.
Transfer pricing documentation
Transfer pricing documentation is specifically defined by the Regulation of the Minister of Development and Finance of September 12, 2017, regarding the information contained in tax documentation concerning corporate income tax.
According to the document, such documentation includes:
- Detailed descriptions of transactions,
- Analysis of data conducted for comparative purposes,
- Detailed data containing all relevant information about the taxpayer,
- Presentation of the taxpayer’s financial data,
- Information about methods and ways of calculating income (or losses), along with a detailed justification of the choice made,
- Any agreements, contracts, agreements, and other relevant documents prepared,
Change of Deadlines for Transfer Pricing Documentation
Since January 1, 2019, the deadlines for preparing and submitting local files and master files, as well as TP-R information, have changed. The amended legal regulations provide a 9-month period for compiling documents that will be used by tax authorities to conduct analyses related to the risk of understating income or any other analyses.
As for Transfer Pricing (TP-R) information, they have replaced the previously used CIT-TP and PIT-TP forms. Thanks to this change, the selection of entities to be audited is much simpler.
The deadline for preparing the so-called group documentation has also been extended. Now, taxpayers have up to 12 months from the end of the tax year to complete this process.
All entities are strictly obliged to adhere to these deadlines.
What are the consequences of not having transfer pricing documentation?
It should be noted that failure to comply with the requirements regarding transfer pricing documentation has serious consequences.
According to the law, it is required that the taxpayer, within an unextendable period of 7 days after receiving a summons, submit complete documentation. In case of non-compliance with this obligation, a penalty is imposed, requiring the payment of a fee amounting to 50% of the tax. The tax rate is calculated based on the estimated income and applies not to the entire income but only to the difference between the income declared by the entity and the income estimated by the tax authorities.
Failure to prepare, deliver, and present transfer pricing documentation is closely associated with tax penalties, which, however, cannot be imposed on entities with legal personality. Tax penalties apply only to individuals. Therefore, in the case of non-compliance with the obligation to submit transfer pricing documentation on time, a specific entity, such as a company as a whole, will not be held responsible. Instead, individual liability lies with the natural person responsible for managing the financial and business affairs of the entity. Typically, tax penalties apply to the management or individuals responsible for bookkeeping duties.