New Poland transfer pricing risk assessment tool released in interactive format

Monika Laskowska

By Dr. Monika Laskowska, Center of Tax Analyses and Studies, Warsaw School of Economics

The Polish government has launched an interactive version of its new transfer pricing risk assessment tool. Taxpayers should use this form to provide information relevant to Poland transfer pricing to the tax authority by the end of September 2020. 

The form requires taxpayers to provide information for 2019 and is significantly different from previous years.

The much broader information required on the new form includes transactions excluded from Poland transfer pricing documentation disclosure.  

Information is also requested in a more descriptive way, covering a wide range of profit indicators for counterparties.

In many cases, the new form requires additional effort from other group companies to provide separate information on profit indicators concerning transactions with Polish counterparties.

This tool will provide the Polish tax authorities with an unprecedented bundle of information on controlled transactions.

This tool will provide the Polish tax authorities with an unprecedented bundle of information on controlled transactions.

Scope of required information

The new Poland transfer pricing risk assessment tool requires taxpayers to include general information about the taxpayer, including financial indicators concerning financial conditions (operational margin, gross profit margin, return on assets, return on capital). 

Specific formulas are provided to calculate these indicators.

With respect to controlled transactions, taxpayers should categorize controlled transactions. In the case of intangible transactions, taxpayers should also specify the categories of intangibles involved.

 Categorization requires aligning the controlled transaction with the type of transaction from a list provided by the Ministry of Finance.

The list includes categories of transaction such as selling (or purchasing) finished products by (from) a full-fledged producer, selling  (or purchasing) finished products by (from) a limited risk manufacturer, providing toll manufacturing services, selling goods by a limited risk distributor, selling goods as a commissionnaire, provision of (or purchasing) agent services concerning selling goods or products, provision of (or purchasing) low value-adding services, and provision of conduit services in selling or purchasing services.

Categorization of financial transactions covers the following types: provision of capital in any form (bank loan, loan, bonds issued), cash pooling with an indication of positive and negative results, guarantees, deposit of cash, any type of insurance including captive insurance, all other financial services like hedging or factoring. Financial transactions should also cover information on the full amount of capital provided, the amount of guaranteed liability, and the actual amount transferred.

Intangible transaction categories include, among other, sale (purchase) of intangibles, contributions of intangibles to the entity’s capital,  provision of limited rights in intangibles to trademarks, know-how, patent, or other intangibles.

Additionally, there is a separate box to indicate business restructuring among associated companies with remuneration or separately without remuneration.    

It is worth highlighting that the categorization of controlled transactions should also be done for transactions that are below the threshold for the Poland transfer pricing documentation obligation or by those companies that are exempt from this obligation.

It is worth highlighting that the categorization of controlled transactions should also be done for transactions that are below the threshold for the Poland transfer pricing documentation obligation or by those companies that are exempt from this obligation.

Also, domestic entities exempt from Poland’s transfer pricing documentation requirements should categorize controlled transactions, which in many cases mean the necessity to perform functional analyses to check whether a transaction is with full-fledged or limited risk group members.       

Compliance with arm’s length principle  

The new tool also requires taxpayers to provide a summary of the transfer pricing methods used and results set of the comparable analyses.

In particular, this includes information on transfer prices, tested parties, and profit indicators when used, details about sources of information used for comparable analyses, criteria for comparables selection, adjustments to comparables, and final benchmark study results.

This section requires broad financial information on controlled transactions that might not be directly reflected in the taxpayer’s transfer pricing documentation.

For example, it requires the provision of the value of a transaction that, in many cases, will require the necessity of profit and loss account segmentation.

Additionally, when the tested party is not a Polish taxpayer the same should be done for a foreign company.

This might be the sort of information that is not required by the residence jurisdiction of the tested party, and thus it requires additional calculations by other group members.

Augmented Poland transfer pricing risk assessment

Polish tax authorities will be able to form an unprecedented resource of wholistic information for transfer pricing risk assessment and probably other purposes.

Tax authorities will be able to build their own library of the most common transactions and results in specific branches through the coming years. Any deviations from the designed risk assessment models created by tax authorities will most probably be targeted for potential transfer pricing audits.

It is worth mentioning that Poland transfer pricing documentation is prepared for audit purposes and that tax authorities do not have in hand access to it.

Now, the situation will be drastically changed as tax authorities will gather a very unique bundle of information that no taxpayer and no tax advisor ever had have to.

In my opinion, this is an impressive example of a reversal of asymmetry of information.