Transfer pricing documentation
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Elements of tax documentation

Tax regulations introducing the documentation obligation do not directly specify the template of transfer pricing tax documentation. However, the regulations specify permanent elements that the documentation should contain.

First of all, the content of the documentation determines the description of the connections between entities.

Next, it is necessary to describe the transaction, i.e. the functions to be performed by the entities participating in the transaction, taking into account which of the parties performs the more important functions. Under this point, participants should take into account the assets used and the risk taken, taking into account its distribution among the transaction participants.
The next part of the documentation should include a transfer pricing analysis, i.e.

a) analysis of data of unrelated entities or transactions concluded with unrelated entities or between unrelated entities considered comparable to the conditions established in controlled transactions, hereinafter referred to as “comparative analysis”, or

b) analysis showing compliance of the conditions under which the controlled transaction was concluded with the conditions that would be established by unrelated entities, hereinafter referred to as the “compliance analysis” – where preparing a comparative analysis is not appropriate in the light of a given transfer pricing verification method or is not possible with exercising due diligence.

As part of the above-mentioned analysis, it is necessary to determine all costs related to the transaction as well as the form and date of payment. It should be assumed that these will undoubtedly be costs directly related to the payment for the subject of the transaction, but also other additional costs incurred in connection with the transaction. Their type will depend on the characteristics of a given transaction. Such costs are usually not included in the price, but they influence the determination of the profitability of the transaction, i.e., consequently, its market nature.

The key element of the documentation is to indicate the adopted method and method of calculating profits and determining the price of the subject of the transaction. The calculation methods are specified in the implementing regulation to the income tax acts. The most common is the so-called Comparable uncontrolled price method. It involves comparing the prices for products and services used in comparable transactions between independent entities. The analysis of comparability when using the comparable uncontrolled price method should include, in particular, the quality of services or products, the contractual distribution of rights and obligations of the parties, as well as the volume of mutual turnover and liability for non-performance or improper performance of the obligation.
The final element of documentation is financial information. This element requires an analysis of the financial statements and a description of the financial situation of the entity preparing the documentation.