Advicero Nexia | TAX ALERT: Changes in TP-R

Dear Sirs,

We would like to inform you that as of 1 January 2022, changes to the transfer pricing provisions of the tax law came into force. In fact, most of these changes will be relevant only at the moment of verification of the obligation to prepare transfer pricing documentation for the year 2022. Nevertheless, some of the changes introduced are worth getting acquainted with already now.

We hereby present to you a summary of the changes introduced:

1. Changes in formal requirements for preparing transfer pricing documentation and deadlines related to transfer pricing
2. Changes in the TP-R
3. Changes in the definition of transaction value
4. Changes in the conditions for transfer pricing adjustments (Article 11e of the CIT Act)
5. Extension of the catalogue of exclusions from the obligation to prepare local documentation
6. Extension of the catalogue of exemptions from the obligation to prepare local documentation
7. Waiving the preparation of comparative analysis/compliance analysis for selected entities
8. Exemption from filling in information on contracts concluded with non-residents (ORD-U) for selected entities
9. Extension of the scope of activities subject to penal-fiscal liability
10. Other changes

1. Changes in formal requirements

• Extension of deadlines for reporting and preparation of documentation and TPR information:
  
  • Basic documentation (Local file) – by the end of the 10th month after the end of the entity’s tax year,
    
  • TPR information – submission by the end of the 11th month after the end of the entity’s tax year,
    
  • Submission of Local file at the request of the tax authority – 14 days from the day of receiving the request.
    
• Introduction of a requirement to prepare the Local File in electronic form.
  
• Change of the authority to which the TPR should be submitted from the Head of KAS to the head of the tax office competent for the entity.

2. Changes in TP-R

• From 1 January 2022, the obligation to submit a separate statement on the preparation of local transfer pricing documentation to the tax authorities has been eliminated. After the changes, the statement is an integral part of the TP-R form.
  
• Clarification that TP-R information is prepared on the basis of local transfer pricing documentation or, if the entity concerned was not required to prepare such documentation, on the basis of financial statements or other documents.
  
• Indication that for the purpose of the statement on compliance with the real state and market conditions, in the case of the receipt of free of charge or partly paid things or rights, or other benefits in kind constituting revenue, transfer prices are considered to be determined on the terms that unrelated parties would have agreed between themselves, if the revenue has been shown for tax purposes in accordance with the arm’s length principle.
  
• Clarification, according to which the TP-R information shall be signed by natural persons, persons authorised to represent the foreign entrepreneur in the branch or the head (director) of the entity within the meaning of the Accounting Act, respectively, and in case the entity is managed by a multi-member body, a designated person from this body. At the same time, it is still not possible for the TP-R information to be signed by a proxy, with the exception of a proxy being an advocate, legal adviser, tax adviser or certified auditor.
  
• The introduction of a proviso that the designation of a member of a multi-member body to sign the TP-R information does not exempt the other members of that body from liability for failure to file the information.

3. Changes in the definition of the value of transactions

• Linking the concept of the value of a controlled transaction to VAT neutrality – the value of a controlled transaction is reduced by the value of VAT, except where it does not constitute input tax, and that part of input VAT for which the taxpayer is not entitled to a reduction in the amount or a refund of the tax difference.

4. Changes in the conditions for transfer pricing adjustments (Article 11e of the CIT Act)

• Repeal of the obligation to report the transfer pricing adjustment in the annual return,
  
• Allowing an accounting receipt (document) as a confirmation of transfer pricing adjustments,
  
• Removal of the requirement for Poland to have a double tax treaty with the country/ territory where the related party has its registered office or management board – from 1 January it is sufficient only to have a legal basis for the exchange of tax information with the country of residence of the related party.

5. Extension of the catalogue of exclusions from the obligation to prepare local documentation

• Exemption from the documentation obligation, after meeting the conditions indicated by the provisions of the CIT Act, for transactions concluded exclusively between:
  
  • foreign permanent establishments located in Poland, whose parent entities are related entities with registered office/management in the EU Member State or EEA,
    
  • foreign permanent establishment situated in Poland of a related entity that has its registered office/management in an EU or EEA Member State and its related entity that has its registered office/management in Poland.

6. Extension of the catalogue of exemptions from the obligation to prepare local documentation

• The catalogue of exemptions includes transactions concerning:
  
  • low value added services fulfilling the safe harbour conditions, i.e.
    
    • the mark-up on the cost of services has been set using statutory methods and amounts to a maximum of 5% of the costs for the acquisition of services and a minimum of 5% of the costs for the provision of services,
    • the service provider is not a resident, established or managed entity in a tax haven,
    • the recipient of the service has a calculation comprising: i) the nature and amount of the costs included in the calculation, ii) how the allocation keys have been applied and the rationale for the choice of allocation keys for all related parties using the services, iii) a description of the transaction, including an analysis of functions, risks and assets.
  • loans, credit facility or bond issue meeting the safe harbour conditions, i.e.
    
    • the interest rate per annum as at the date of conclusion of the agreement shall be determined on the basis of the type of the base interest rate and the margin, as specified in the announcement of the Finance Minister valid as at the date of conclusion of the agreement
    • there is no provision for payment of transaction-related fees other than interest, including commissions or premium;
    • the loan, credit or bonds were granted/issued for a period not exceeding 5 years,
    • during the tax year, the total level of liabilities or receivables of the related entity on account of capital with related entities, calculated separately for loans granted and borrowings, is no more than PLN 20,000,000 or its equivalent,
    • the lender does not have its place of residence, seat or management board in a tax haven.
  • so-called pure reinvoicing provided that the statutory conditions are met, i.e.
    
    • no added value is created in the transaction and the settlement takes place without taking into account a profit margin or mark-up,
    • the settlement is not directly related to another controlled transaction,
    • the settlement takes place immediately after the payment to an unrelated party
    • the related party is not an entity resident, established or managed in a tax haven,
    • where an allocation key is applied, the value of those services supplied by the service provider to unrelated parties shall not exceed 2% of the value of those services supplied to related and unrelated parties.
      
  • Transactions covered by a advance pricing agreement, investment or tax agreement, for the period to which such agreement relates.

7. Waiving the obligation to prepare a comparative analysis/compliance analysis for selected entities

• Introduction of the possibility to waive the comparative analysis or the conformity analysis for:
  
  • controlled transactions concluded by taxpayers who are micro or small entrepreneurs (applicable to documentation prepared for the tax year beginning during 2021). The exemption applies if in the last tax year the entrepreneur meets the definition of micro or small entrepreneurs in accordance with the Entrepreneurs’ Law Act.
    
  • transactions other than controlled transactions concluded with the so-called tax havens or in which the actual owner of the contractor is a resident of the so-called tax havens subject to the documentation obligation (applicable to documentation prepared for the tax year beginning during 2021).

8. Exemption from the preparation of the ORD-U information

• Exemption from ORD-U filing for taxpayers/companies that are not legal entities that are required to file a TPR Information and do not engage in transactions with tax havens (direct or indirect).

9. Extension of the scope of activities subject to penal-fiscal liability

• According to the new wording of the regulations, a fine of up to 720 daily rates (the maximum penalty in 2022 is PLN 29 million) will be imposed on anyone who
  
  • does not prepare local transfer pricing documentation against the obligation, or
    
  • does not attach group transfer pricing documentation (master file) to local transfer pricing documentation, or
    
  • prepares documentation inconsistent with the actual state.
    
• On the other hand, there is a fine of 240 daily rates for preparing documentation after the deadline or submitting TPR Information after the deadline.

10. Other changes

• Indication that exercising significant influence also means holding, directly or indirectly, 25% or more of the interest or rights in the losses of an entity.
  
• Clarification of the documentation obligation for companies forming part of a tax capital group – the obligation to document so-called indirect tax haven transactions also applies to companies forming part of tax capital groups as part of transactions with entities not forming part of that tax capital group located in tax havens, or where the actual owner is located in a tax haven.
  
• Clarification indicating that the date of conclusion of a loan agreement (benefiting from the safe harbour preference) shall also be the date of amendment of the loan agreement where the amendment concerns the interest rate of the loan.
  
• Indication of the definition of a tax agreement and an investment agreement within the meaning of the Tax Ordinance. An investment agreement is an agreement concluded between a taxpayer and a tax authority regarding tax consequences of undertaken investments. A tax agreement, on the other hand, is concluded between the Head of KAS and a taxpayer who previously concluded the so-called cooperation agreement, and may concern, among others, the interpretation of tax law provisions, the determination of transfer prices or the lack of justification for the application of an anti-avoidance clause.

Should you have any questions, we are at your disposal.

Best regards,