The obligation to prepare transfer pricing documentation generally arises when transactions are concluded between related entities. However, there is one exception to this rule. If we conduct transactions with entities residing, headquartered, or headquartered in a territory or country that practices harmful tax competition, known as tax havens, we are obligated to prepare transfer pricing documentation for both related and unrelated entities.
The list of countries and territories applying harmful tax competition is included in the Regulation of the Minister of Finance of 28 March 2019. It includes:
1) The Principality of Andorra;
2) Anguilla – Overseas Territory of the United Kingdom of Great Britain and Northern Ireland;
3) Antigua and Barbuda;
4) Sint-Maarten, Curaçao – countries that are part of the Kingdom of the Netherlands;
5) The Kingdom of Bahrain;
6) British Virgin Islands – Overseas Territory of the United Kingdom of Great Britain and Northern Ireland;
7) The Cook Islands – Self-Governing Territory Associated with New Zealand;
8) The Commonwealth of Dominica;
9) Grenada;
10) Sark – British Crown Dependent Territory;
11) Hong Kong – Special Administrative Region of the People’s Republic of China;
12) The Republic of Liberia;
13) Macau – Special Administrative Region of the People’s Republic of China;
14) The Republic of Maldives; 15
) The Republic of the Marshall Islands;
16) The Republic of Mauritius;
17) Principality of Monaco;
18) Republic of Nauru;
19) Niue – Self-Governing Territory Associated with New Zealand;
20) Republic of Panama;
21) Independent State of Samoa;
22) Republic of Seychelles;
23) Saint Lucia;
24) Kingdom of Tonga;
25) US Virgin Islands – Unincorporated Territory of the United States;
26) Republic of Vanuatu.
Most of the above may bring to mind holidays on paradise islands, but the list also includes Andorra and Monaco in Europe.
Not all transactions in these countries will be subject to the requirement to prepare transfer pricing documentation. Documentation must be prepared for transactions whose value exceeds:
1) PLN 2,500,000 – in the case of a financial transaction;
2) PLN 500,000 – in the case of a non-financial transaction.
If we were a party to such a transaction, we must prepare transfer pricing documentation by October 31, 2024. This documentation should include all the elements required for standard transfer pricing documentation. Additionally, it should include the economic justification for the transaction, in particular a description of the expected economic benefits, including tax benefits.
A tax benefit may be not only the absence of a tax liability, but also, for example, a lower tax assessment, deferment of tax payment, tax overpayment or tax loss.
Economic benefits may include, for example, increased market share, greater brand/product recognition, or increased business profitability.
If we already have the documentation ready, we must submit TPR transfer pricing information by December 2, 2024. Currently, this information can only be submitted via e-Declarations (a qualified signature is required).
In the information on transfer prices, we also make a statement that the prices were established on terms that would apply between unrelated entities and entities not based in tax havens.
In the case of transactions with entities from countries that practice harmful tax competition, simply making them with unrelated entities is not sufficient to demonstrate market-based pricing. It is therefore important to ensure from the outset that the transaction is conducted on market terms.
Failure to comply (or improper compliance) with transfer pricing obligations exposes the perpetrator to fiscal criminal liability, and the entity conducting transactions with entities from tax havens to tax sanctions.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of September 8, 2024.
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