By Milena Kaniewska-Srodecka, Senior Economist, CrossBorder Solutions
Poland’s transfer pricing revolution began in 2017. As a result, new rules became much more demanding for Polish taxpayers. They introduced new transfer pricing instruments, such as the obligatory benchmark and master file (entirely new requirements for Polish taxpayers), and also expanded the local file. The new rules were not very clear, however. In the following years, the tax authorities introduced changes that reorganized the Polish corporate income tax act (as well as the individual income tax act) and gave transfer pricing a special place in it— a separate chapter. The general rules are not only found in the corporate income tax act, however. To make sure that you follow all of the rules, you also must check the decrees the Polish Ministry of Finance has issued. And to know what the risks of transfer pricing noncompliance are, you should follow other legislation regarding tax ordinance and the tax penalty code, as well.
Once you started your exciting new transfer pricing journey in Poland, you had to study the 2017 rules. After that, you were required to continue to increase your transfer pricing knowledge over the following years while learning to overcome many obstacles—mainly with interpreting the new regulations and technical issues relating to the transfer pricing form. Now further developments in transfer pricing are expected to be coming.
Transfer pricing form
In practice, the Polish transfer pricing form became a summary of the local file, providing very detailed information on the transactions and benchmarks. All data is summarized in electronic form, very transparent to the tax authorities and easily manageable for tagging “interesting” transactions for a tax audit. Moreover, because the form summarizes the key data present in local files with benchmarks, you should consider it as if you actually submitted your local file to the tax authorities on a yearly basis without any additional request. In fact, without benchmarks, you would not be able to submit the proper transfer pricing form. And because it is in an electronic form, it is quite easy for the tax authorities to analyze it and find any gaps.
Surprising requirement for tax haven transactions
A recent change introduced in 2021 that is rather unexpected from a global perspective is the requirement to prepare the local file for transactions involving a party seated in a tax haven—even if it’s an unrelated party. Of course, there are some thresholds, but the whole concept triggers many problems for Polish taxpayers. The main challenge is to properly identify such transactions and entities that may require additional actions regarding transfer pricing compliance.
Polish Deal program 2022
Recent changes covered within the so-called New Deal seem to be quite promising for Polish taxpayers. They include extended deadlines for transfer pricing compliance and exemption from benchmarks, or even local files in specified cases. Following the general trend in the transfer pricing world, the electronic form of transfer pricing files will be obligatory in Poland. The scope of fiscal penalty for local file noncompliance has been broadened, as well.
Polish transfer pricing forum
The Polish Ministry of Finance has organized a Polish transfer pricing forum where transfer pricing experts can discuss transfer pricing issues with tax authorities. The results of such cooperation are issued as recommendations prepared by transfer pricing experts and accepted by the tax authorities. The number of such recommendations is rapidly increasing as the working groups dedicated to specific areas of transfer pricing are constantly growing. Poland may become a leading transfer pricing publisher if you take into consideration the volume of recommendations issued to date there.
Next changes on the horizon
Last year, the Polish Ministry of Finance announced that Poland would be taking part in a project called “Strengthening the transfer pricing legal system against tax evasive behavior,” realized under the European Union’s “Technical Support Instrument” program.
The project is based on the exchange of good practices in the field of documentation obligations, electronic reporting, and analysis with partner countries. As part of this initiative, Poland has established cooperation with five countries that are recognized as leaders in the field of competitive transfer pricing regulations. Poland’s partners in the implementation of the project are Great Britain, Germany, Sweden, the Netherlands, and the United States. Experts from these countries will share their experiences and technological solutions with representatives from Poland’s Ministry of Finance.
Stay focused and stay tuned
To be transfer pricing compliant in Poland, you have to follow not only the changes in the tax and fiscal penalty law but also the explanations and recommendations issued or accepted by the Polish tax authorities. As the tax law in this area seems to be becoming more simplified (compared to the first regulations in 2017), there are still areas for dispute, some unexpected obstacles, and the increasing consequences for noncompliance.
We have been running this “TP Runmageddon” since 2017 and it seems that the finish line is not yet on the horizon. This should be no surprise to the transfer pricing community, however, as transfer pricing continues to evolve as international tax law evolves.
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Milena Kaniewska-Srodecka is a senior economist at CrossBorder Solutions
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