TP Statement and non-arm’s length transfer prices – does a CIT adjustment eliminate the risk?

Can a taxpayer confirm in the TPR form that its transfer prices were arm’s length if it has previously adjusted its taxable income to an arm’s length level? A recent judgment of the Voivodeship Administrative Court in Gliwice suggests that a mere adjustment of the CIT settlement does not determine whether the conditions of a controlled transaction satisfy the arm’s length principle.

In this article, we discuss the judgment of the Voivodeship Administrative Court of 12 March 2025 and explore its potential implications for individuals signing the TP statement and for taxpayers entering into related-party transactions.

Taxpayers with transfer pricing reporting obligations are well aware of the statement included in the TPR form. By signing it, they confirm that the local transfer pricing documentation has been prepared and that the prices applied in the documented transactions are consistent with the arm’s length principle.

The statement included in the TPR form is unequivocal in nature and may expose its signatories to fiscal penal liability. In practice, this raises an important question for individuals responsible for submitting the TPR: is it possible to make such a statement where there are doubts as to the arm’s length nature of certain transactions carried out with related parties?

The issue becomes especially relevant where a taxpayer, despite having subsequently adjusted its taxable income for CIT purposes, cannot state with certainty that the conditions of the transaction itself complied with the arm’s length principle.

This was precisely the issue examined by the Voivodeship Administrative Court in Gliwice in its judgment of 12 March 2025 (case no. I SA/Gl 1364/24; non-final judgment). The case concerned a practical and highly significant question: whether a taxpayer that adjusts its taxable income to an arm’s length level for CIT purposes may nevertheless declare in the TPR form that the transfer prices applied in related-party transactions were established on arm’s length terms.

The Court answered this question unequivocally – reaching a conclusion that many taxpayers may find counterintuitive.

Preferential transfer prices and taxable income adjustments

A company belonging to a corporate group sold finished products to related parties. For certain transactions, preferential prices were applied, including – as established from the facts of the case considered by the Court – prices that deviated from the level regarded by the taxpayer as arm’s length (i.e. prices below the cost of production).

At the same time, the company applied a “true-up” mechanism in its CIT settlement. It recognised additional taxable income corresponding to the difference between:

• the price applied in the transaction; and
• the price corresponding to the arm’s length level determined in accordance with its transfer pricing policy.

As a result:

• the company’s taxable income was increased to an arm’s length level;
• the corresponding tax was paid; and
• no loss of tax revenue occurred.

Against this background, a key question arose: can a taxpayer, in such circumstances, declare in the TPR that its transfer prices were established on arm’s length terms?

Does arm’s length income mean arm’s length transfer prices?

The company argued that because:

• it reported taxable income at an arm’s length level; and
• the tax effects of the prices applied had been neutralised through the CIT settlement,

there were no grounds for concluding that the conditions of the transactions differed from arm’s length conditions.

According to the taxpayer, the TP statement should be assessed primarily in light of the final tax outcome rather than solely by reference to the price formally applied in a given transaction.

The tax authority disagreed with this position, and its reasoning was fully upheld by the Court.

The Court’s position: The TP statement concerns transaction conditions, not a CIT adjustment

The Court highlighted several key issues.

1. Arm’s length pricing relates to transaction conditions, not a subsequent CIT adjustment

According to the Court, for the purposes of Article 11c(1) of the CIT Act, what matters is the actual conditions under which a transaction was concluded between related parties.

The subsequent recognition of additional taxable income does not alter the fact that the transaction itself was carried out under conditions that differed from those regarded by the taxpayer as arm’s length.

2. The TP statement is unequivocal in nature

The Court emphasised that the statement submitted as part of the TPR:

• is categorical and unambiguous;
• relates to compliance of the transaction conditions with the arm’s length principle; and
• concerns the actual conditions applied in the transaction.

Consequently, where a taxpayer itself acknowledges that the prices applied in a transaction deviated from arm’s length conditions and required a subsequent adjustment for CIT purposes, confirming arm’s length pricing in the TPR may give rise to significant risks.

3. An income adjustment does not “correct” the transfer price

A key element of the Court’s reasoning was the distinction between two separate legal frameworks:

• transfer pricing regulations, which focus on the conditions of the transaction itself; and
• tax law provisions governing the determination of the tax base.

The Court made it clear that adjusting taxable income to an arm’s length level does not automatically mean that the price applied in the transaction was arm’s length.

4. Limited scope of Article 11t(2b) of the CIT Act

The taxpayer attempted to rely on Article 11t(2b) of the CIT Act.

However, the Court highlighted that this provision is exceptional in nature and applies exclusively to:

• gratuitous benefits; and
• partially gratuitous benefits.

It cannot be extended to standard sales transactions between related parties.

Why is this judgment important for taxpayers preparing TPR?

The judgment is relevant for all taxpayers preparing TPR forms and local transfer pricing documentation. It demonstrates that the assessment of arm’s length pricing may be carried out independently from the tax consequences reflected in the CIT return.

In practice, this means that taxpayers should pay particular attention to documenting controlled transactions and continuously monitoring whether their arrangements remain consistent with the arm’s length principle.

How does the judgment affect TPR reporting obligations?

Although the judgment is not yet final, it reflects an increasingly restrictive approach taken by tax authorities towards the statement included in the TPR form.

In practice, this means that merely adjusting taxable income to an arm’s length level may not be sufficient to eliminate the risks associated with confirming arm’s length pricing in the TPR.

Even if a taxpayer:

• pays additional tax;
• adjusts its income to a level consistent with a benchmarking study; or
• reduces the risk of income adjustment by the tax authorities,

this does not automatically mean that the conditions of the transaction itself will be regarded as arm’s length for the purposes of the TP statement.

The risks associated with the statement remain independent of the final CIT outcome. Given the personal nature of the responsibility borne by the signatories, proper design and documentation of intra-group transactions become even more important.

Is the Court’s position consistent with the purpose of transfer pricing rules?

The judgment may raise questions when viewed from the perspective of the purpose underlying transfer pricing regulations. After all, transfer pricing rules are intended primarily to prevent related-party relationships from resulting in an erosion of the tax base.

One could therefore argue that a taxpayer who voluntarily adjusts its income to an arm’s length level acts in a manner that mitigates tax risk and achieves an outcome similar to that which might result from a tax audit.

At the same time, the judgment demonstrates that both tax authorities and administrative courts increasingly distinguish between:

• the assessment of the transaction itself; and
• the subsequent adjustment of the taxpayer’s tax settlement.

How can taxpayers mitigate risks associated with the TP statement and transfer prices?

In practice, the key issue is ensuring arm’s length pricing already at the transaction planning stage, in particular through:

• carefully designing related-party pricing models;
• properly documenting pricing mechanisms in transfer pricing policies;
• regularly updating transfer pricing policies; and
• preparing benchmarking studies on an ex ante basis.

It is equally important to monitor arm’s length conditions during the life cycle of the transaction, including through:

• regular updates of benchmarking studies;
• appropriate use of transfer pricing adjustment mechanisms under Article 11e of the CIT Act;
• periodic reviews of profitability levels; and
• renegotiation of intra-group pricing arrangements where there is a risk that arm’s length pricing may be challenged.

In the case analysed by the Court, particular importance could also have been attached to documenting the business rationale for applying preferential prices to specific products or counterparties.

The OECD Guidelines recognise that, in certain circumstances, the temporary application of preferential pricing or even losses on particular transactions may be commercially justified and do not necessarily indicate non-arm’s length behaviour. The crucial factor, however, is demonstrating that independent parties operating under comparable circumstances could reasonably have acted in the same way.

Need support with transfer pricing?

If you have concerns regarding the arm’s length nature of related-party transactions, the preparation of TPR form or the risks associated with the TP statement, please contact the MDDP transfer pricing team.

You may also be interested in our publication ”Transfer Pricing in case law. A review of trends in 2025” where we discuss 18 important judgments of the Voivodeship Administrative Courts and the Supreme Administrative Court, together with practical conclusions for taxpayers engaged in controlled transactions.