Transfer pricing documentation
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Preparing transfer pricing documentation
The KRS Kancelaria prepares transfer pricing documentation. Thanks to the experience of our team, we will minimize the risk of a sanctioned tax rate and fine being imposed on you in the event of a possible inspection by administrative authorities in this respect. We offer solutions tailored to a specific case, including: specificity of the industry.
Obligation to prepare documentation
The obligation to prepare tax documentation results directly from the regulations contained in the provisions of the income tax acts. The legislator explicitly states that “related entities are obliged to prepare local transfer pricing documentation for the tax year in electronic form in order to demonstrate that transfer prices have been set on terms that would be agreed between unrelated entities.
Local transfer pricing documentation is prepared for a controlled transaction of a homogeneous nature, the value of which exceeds the following documentation thresholds in the tax year:
1) PLN 10,000,000 – in the case of a goods transaction;
2) PLN 10,000,000 – in the case of a financial transaction;
3) PLN 2,000,000 – in the case of a service transaction;
4) PLN 2,000,000 – in the case of a transaction other than that specified in points 1-3.
Other transaction value limits apply to transactions concluded with entities in the so-called countries using harmful tax competition. In the case of controlled transactions with an entity having its place of residence, registered office or management in the territory or in a country applying harmful tax competition or a foreign establishment located in the territory or in a country applying harmful tax competition, the documentation threshold is:
1) PLN 2 500 000 – in the case of a financial transaction;
2) PLN 500,000 – in the case of a transaction other than a financial transaction
It should be noted that the value of the controlled transaction corresponds to:
1) capital value – in the case of a loan, credit or deposit;
2) nominal value – in the case of a bond issue;
3) guarantee sum – in the case of a surety or guarantee;
4) value of assigned revenues or costs – in the case of assigning income (loss) to a foreign establishment;
4a) the total value of contributions made to a company without legal personality – in the case of an agreement of such a company;
5) value specific to a given controlled transaction – in the case of other transactions.
Characteristics of connections
For the obligation to prepare tax documentation, the key issue is defining the concept of a related entity. The definition of related entities is included in the provisions of the Income Tax Act. Currently, within the meaning of the regulations, a related entity means:
a) entities of which one entity exercises significant influence over at least one other entity, or
b) entities over which it has significant influence:
– the same other entity or
– a spouse, relative or affinity up to the second degree of a natural person who exercises significant influence over at least one entity, or
c) a company that is not a legal person and its partner, or
d) a limited partnership, S.K.A., and its general partner, or
e) a general partnership and its partner, or
f) a taxpayer and his foreign establishment, and in the case of a tax capital group – the capital company included in it and its foreign establishment.
Protect yourself against control
Transfer pricing is currently one of the priority areas of control by administrative authorities. Secure your company today!
Protection against sanctionsi
Did you know that the lack of transfer pricing documentation may result in a sanction rate of 50% and a fine of up to PLN 1,700,000?
Entrust the task to specialists
KRS Kancelaria is an experienced team of experts who will help you reduce the risk associated with transfer pricing control. Please contact us.
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.
Sanctions for lack of transfer pricing documentation
Sanctions that may be imposed on an entity for failure to comply with the mandatory transfer pricing tax documentation should be divided into: tax sanctions and fiscal penal sanctions.
1. Tax sanctions – 50% sanction rate.
The basic sanction is the 50% tax rate specified in Art. 19 section 4 of the Corporate Income Tax Act and Art. 30d of the Personal Income Tax Act. Pursuant to these provisions, failure to submit tax documentation in the event of an obligation to prepare it results in the use of a sanctioned tax rate of 50%, calculated on the tax base constituting the difference between the income determined by the tax authority and the income declared by the taxpayer. It should be emphasized that the application of the 50% rate does not exempt persons responsible for financial and economic matters in companies or persons conducting business activity or being partners in partnerships from liability under the provisions of the Penal Fiscal Code.
2. Fiscal penalties – fine.
In addition to the above-mentioned tax sanctions, failure to comply with the obligation to submit documentation of transactions with a related entity results in meeting the criteria of a fiscal offense specified in Art. 80 § 1 of the Penal Fiscal Code. This provision stipulates that anyone who, contrary to the obligation, fails to submit the required tax information to the competent authority on time, shall be subject to a fine of up to 120 daily rates if an additional tax liability arises after the tax proceedings. Pursuant to the Fiscal Penal Code, the daily rate cannot be lower than 1/30 of the lowest monthly remuneration at the time of adjudication in the first instance, nor exceed its four hundred times.