Transfer pricing documentation requirements in Poland

1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?

In Poland the obligation to prepare transfer pricing (“TP”) documentation is imposed on taxpayers which are engaged in (i) transactions with associated enterprises (according to the definition provided in the Polish Corporate Income Tax (“CIT”) Act) or (ii) transactions involving payments made directly or indirectly to entities based in a country applying harmful tax competition, i.e. “tax haven” (the list of such countries is included in the ordinance issued by the Polish Finance Minister), if the value of such transactions in a tax year exceeds thresholds specified in the Polish CIT Act.

2. What is the content of the documentation that must be prepared?

The provisions of the Polish CIT Act indicate obligatory and non-obligatory elements that should be included in the documentation. Specifically, it should contain:

  • A description of the functions of the parties to the transaction, taking into account assets employed and risk taken. In practice, the analysis should include:
    • The types of functions fulfilled by the parties;
    • The type and value of tangible assets employed, such as real estate, buildings, machines, equipment, or means of transport;
    • The type and value of intangible assets employed;
    • The human capital engaged;
    • The division of entrepreneurial risk and responsibility between the parties;
  • A specification of all costs related to the transaction, stating the form of payment and deadline;
  • The method by which the profit has been calculated and the transaction price determined;
  • A description of the business strategy and other actions within the strategy, provided they influence the transaction value;
  • A description of other factors, if such factors were taken into account for the purpose of determining the price;
  • A description of benefits gained by the taxpayer preparing the transfer pricing documentation, in the case of agreements concerning services.

a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?

Taxpayers which engage in transactions with associated enterprises (according to the definition provided in the Polish CIT Act) must provide documentation in respect of such transactions where their value exceeds the following thresholds:

  • EUR 100,000 where the value of the transactions does not exceed 20% of the share capital of the taxpayer. For the purposes of this calculation the share capital does not include:
    • The part which was not actually paid-up; and
    • In-kind contributions made to the taxpayer’s share capital in a form of: debts and interest due from the taxpayer to its shareholders, or intangible assets that cannot be subject to depreciation write offs according to Polish CIT Act (e.g.: works of art or goodwill that does not emerge as a result of a purchase of a business enterprise or its organised part);
  • EUR 30,000 in the case of supply of services, intangible property transactions, including sale or license of intangible assets;
  • EUR 50,000 in other cases.

Taxpayers involved in transactions involving payments made directly or indirectly to entities based in a country applying harmful tax competition, i.e. “tax haven” (the list of such countries is included in the ordinance issued by the Polish Finance Minister) must prepare transfer pricing documentation if the value of such transactions in a single tax year exceeds EUR 20,000.

b) What is the definition of “associated enterprises” for the purposes of this requirement?

The definition of “associated enterprises” provided in the Polish CIT Act refers to both international and domestic relationships.

International relationships:

  • A taxpayer resident in Poland participates directly or indirectly in the management or control of an enterprise located abroad, or has a share of at least 5% in the capital of such an enterprise;
  • A natural or legal person resident abroad participates directly or indirectly in the management or control of an entity located in Poland, or has a share of at least 5% in the capital of such an entity;
  • The same natural or legal persons simultaneously participate, directly or indirectly, in the management or control of both an entity resident in Poland and an entity resident abroad, or have a share of at least 5% in each of them.

The above criteria also apply to a permanent establishment of a foreign taxpayer.

Domestic relationships:

  • A Polish entity participates directly or indirectly in the management or control of another Polish entity, or has a share of at least 5% in the capital of such an entity;
  • The same natural or legal persons simultaneously participate, directly or indirectly, in the management or control of Polish entities, or have a share of at least 5% in each of them.

In the domestic context, the relationships which cause the parties to be regarded as “associated enterprises” include (i) family ties, an employment relationship or property relations between domestic entities or persons responsible for management, control or supervision within those entities, and (ii) the situation where any person is performing management, control or supervisory functions in both entities.

Please note that for the purpose of determining indirect participation in capital, it is assumed that if entity A has a given share in the capital of entity B, and entity B has the same share in the capital of entity C, then entity A indirectly has the same share in capital of entity C. If the respective shares of A and B in the capital of C are different, the lower share is treated as an indirect share.

c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?

The content of the TP documentation specified in the Polish CIT Act partly overlaps with the EUTPD requirements for country-specific documentation. Nevertheless there are some differences. There is no official option of choosing between the local standard and EUTPD. However, no detailed rules for preparing TP documentation have been enacted, which means that the taxpayer is free to choose the form of the documentation, provided that it includes the content which is obligatory under the Polish CIT Act. Therefore, we believe EUTPD would be accepted if it contained all the mandatory elements, emphasized in such a way as to present them clearly to the Polish tax authorities. This could be done for instance by presenting them in separate sections or chapters of the documentation.

d) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?

In order to answer this question, we have to distinguish between two situations:

  • (A) A taxpayer that is not established in Poland but is subject to limited tax obligations in Poland, due to having a permanent establishment in Poland;
  • (B) A taxpayer that is neither established in Poland nor subject to limited tax obligations in Poland.

In situation (A), a taxpayer which is involved in transactions with an “associated enterprise”, and is required to prepare transfer pricing documentation, has to provide certain information to the tax authorities, upon request, for the purposes of carrying out a transfer pricing analysis in the course of a tax audit.

In situation (B), in the case of a taxpayer not established in Poland which is merely a party to a transaction with an “associated enterprise” that is subject to transfer pricing documentation requirements in Poland, the tax authorities can only request information from the latter entity.

e) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?

Comparable studies are not mentioned as an obligatory element of the transfer pricing documentation. The documentation should indicate “the way and method of calculating profit and determining the transaction price”. In practice, taxpayers which are obliged to prepare transfer pricing documentation may enclose comparable benchmark studies as evidence that the transaction prices are arm’s length prices.

f) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?

It is not forbidden to submit the documentation in language other than Polish, but the taxpayer must provide a Polish version upon the request of the tax authorities.

3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?

Taxpayers are obliged to provide transfer pricing documentation to the tax authorities upon specific request, within 7 days of receiving the request.

If the taxpayer fails to provide the transfer pricing documentation within the 7-day period, and the tax authorities estimate the taxpayer’s income as higher than declared (or its loss as lower than declared), then the difference is subject to the penal tax rate of 50%. If the documentation is submitted, but regarded as incomplete or unreliable by the tax authorities (while still amounting in principle to transfer pricing documentation) the estimated difference will be taxed at the normal tax rate of 19%.

Theoretically, there is the potential for criminal liability for failure to submit the documentation, or submission of false documentation, under the Polish Fiscal Penal Code.

5. Does the absence or incompleteness of documentation reverse the burden of the proof as regards the arm’s length character of the transactions?

The only consequences of the absence of documentation or incomplete documentation are mentioned in the answer to the previous question.

There is no official reversal of the burden of the proof, which lies with the tax authorities.

Neither the Polish CIT Act, nor the Finance Minister’s Ordinance implementing the mutual agreement procedure, states that the imposition of the 50% penal tax rate prevents the taxpayer from initiating this type of procedure.

Arkadiusz Michaliszyn
Picture of Andrzej Posniak
Andrzej Pośniak
Managing Partner
Warsaw