Do you rent real estate to related entities? Have you granted or received a loan from a related entity? Do you enter into other goods, services, or financial transactions with related entities?
Check if you need to prepare transfer pricing documentation!
What is transfer pricing?
According to the Act, transfer prices mean the financial result of conditions established or imposed as a result of existing relationships, including:
- price,
- remuneration,
- financial result,
- financial indicator.
Transfer prices are set or imposed by related entities in transactions between them.
They influence tax liabilities because they impact revenue and tax-deductible costs. They are also important for the competitiveness of a capital group.
Who are the related entities?
Related entities are:
- entities of which one entity exercises significant influence over at least one other entity,
- entities over which significant influence is exerted: the same other entity or the spouse, relative or affinity up to the second degree of a natural person exercising significant influence over at least one entity,
- a company that is not a legal person and its partner (except for a limited partner),
- the taxpayer and its foreign establishment, and in the case of a tax capital group – the capital company that is part of it and its foreign establishment.
Exerting significant influence means:
- holding, directly or indirectly, at least 25% of the shares in the capital or voting rights in the controlling, constituting or managing bodies, or shares or rights to participate in profits, losses or assets, or their expectancies, including participation units and investment certificates,
- the actual ability of a natural person to influence the making of key economic decisions by a legal person or an organizational unit without legal personality,
- being married or being related by consanguinity or affinity to the second degree.
Related entities may be:
- natural persons,
- legal entities,
- organizational units that do not have legal personality,
- foreign plants.
Why transfer pricing documentation?
Transfer pricing documentation is created to demonstrate that transfer prices have been established on terms that would be agreed between unrelated entities (arm's length principle).
In what cases should transfer pricing documentation be prepared?
Transfer pricing documentation is prepared for a controlled transaction of a homogeneous nature, the value of which exceeds in the tax year:
- PLN 10,000,000 – in the case of goods and financial transactions;
- PLN 2,000,000 – in the case of a service transaction and other transactions.
In the case of a transaction with an entity based in a tax haven, the documentation threshold is:
- PLN 2,500,000 – in the case of a financial transaction;
- PLN 500,000 – in the case of a transaction other than a financial transaction.
When should transfer pricing documentation be prepared?
Related entities are required to prepare local transfer pricing documentation for the tax year in electronic form by the end of the tenth month following the end of the tax year. If the tax year coincides with the calendar year, transfer pricing documentation must be prepared by the end of October 2024.
Should transfer pricing documentation be sent to the tax office?
No. Transfer pricing documentation is provided upon request by the tax authorities. However, transfer pricing information must be submitted to the tax office on a TPR form by the end of the eleventh month following the end of the tax year.
What if I don't prepare transfer pricing documentation?
Failure to provide transfer pricing documentation, as well as preparing it in a manner inconsistent with reality or failing to submit transfer pricing information on time, may result in a fine.
A tax penalty in the form of an additional liability may also be imposed on the company.
It can amount to:
- 20% of the sum of the unduly disclosed or overstated tax loss and the unreported taxable income in whole or in part – in the event of failure to submit transfer pricing documentation (or submission of incomplete documentation);
- 30% of the sum of the unduly disclosed or overstated tax loss and the taxable income not disclosed in whole or in part – in the event of failure to submit transfer pricing documentation (or submitting incomplete documentation), when at the same time the value of the basis for determining the additional tax liability exceeds PLN 15 million.
As part of the services we provide, we prepare transfer pricing documentation for our clients and prepare information for the tax office.
Contact:
r.knap@kglegal.pl
tel. 510 064 239
This article is for informational purposes only and does not constitute legal advice.
Legal status as of September 3, 2024.
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