Poland issues controversial transfer pricing risk assessment rules

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

The Polish government has issued new rules requiring multinational groups to disclose additional information to the tax office by September 2020 for use in transfer pricing risk assessment.

The new Poland transfer pricing risk assessment rules were introduced to law in December 2018; however, the legislative draft of changes published at the beginning of this year have significantly broadened the scope of information required for 2021.

General requirements

Besides standard transfer pricing disclosures, like identification of the taxpayer and associated companies, controlled transactions, and pricing, taxpayers must provide additional information.

For example, in addition to the comparable analyses included in transfer pricing documentation, taxpayers are obliged to provide the results of comparable analyses and align them with separate, actual, transactions.

The new transfer pricing risk assessment rules require taxpayers to report all controlled transactions, even those not required for transfer pricing documentation, like unpaid receivables.

The new transfer pricing risk assessment rules require taxpayers to report all controlled transactions, even those not required for transfer pricing documentation, like unpaid receivables.

It’s not yet clear whether the Polish tax authority can impose penalties under the new transfer pricing risk assessment rules in the case of a transfer pricing adjustment concerning the accurate delineation of a transaction.

Expansion of information required

A significant legislative change introduced in the draft is the obligation to disclose a restructuring in the reported year.

However, the law is silent on which year should be indicated when a restructuring takes place over more than one year.

The new transfer pricing guidance gives taxpayers the option to choose whether there was or was not a restructuring. Taxpayers should also disclose whether the remuneration was in cash, non-cash assets, or no remuneration was provided.

Poland transfer pricing risk assessment

The new guidance requires that the transfer pricing risk assessment information be provided in a special electronic format (xml format).

The format is designed for simplification purposes; however, it does not allow for many individual situations because there is limited room for additional explanation. As such, the disclosures exclude information about unique circumstances that should not automatically create conditions for triggering a transfer pricing audit.

This would include situations where an associated company enters into a long term contract with a gradual decrease in remuneration where, for the first years, it might incur losses. The transfer pricing risk assessment disclosure is a single-year focused document.

Relief in obligation

Generally, there is no relief from the obligation to submit a Poland transfer pricing risk assessment disclosure.

All taxpayers that are obliged to prepare local transfer pricing documentation and those exempted from this obligation should submit the disclosure. However, there are some simplifications for transactions covered by a safe harbour or domestic transactions where no transfer pricing documentation is required.

For transactions exempted from the transfer pricing documentation requirements, some parts of the new transfer pricing risk assessment requirements can be omitted, such as the determination of method and price.

Penalties

Penalties are imposed for not submitting the new Poland transfer pricing risk assessment disclosure, for late submissions, or for providing false information. The penalty may reach EUR 5 million.

Conclusion

The purpose of introducing the new transfer pricing risk assessment tool is to provide tax authorities with quick and transparent information on transfer pricing.

However, the simplifications proposed will probably cause plenty of misunderstanding and the necessity to provide further explanation in a separate form or in transfer pricing documentation on ad hoc basis.

It’s not yet clear whether the tax authority IT system is prepared sufficiently to properly analyse information provided on an aggregated basis.

There is a risk that tax authorities will be focused on misleading information because of the overly-simplified reporting format.