TPR Profitability – analysis, challenges and finalisation of data for transfer pricing purposes

TPR (Transfer Pricing Report) is a key obligation for taxpayers carrying out transactions with related entities. Its purpose is to provide the tax authorities with essential information about transactions, including the reported profitability.

TPR reporting is not merely a formality – it is a tool that enables quick insight into transactions and facilitates the selection of entities for audit. Alongside TPR, further reporting tools are being introduced, such as JPK CIT or KSeF, which will give the authorities an even broader view of a taxpayer’s activity.

Therefore, consistent and reliable preparation of data for the TPR is of fundamental importance for tax security and for limiting the risk of disputes with the tax authorities.

What is TPR profitability and why does it matter?

Profitability reported in the TPR represents the level of profit (or loss) allocated to the taxpayer in a transaction with related entities.

The most commonly used profitability indicators are:

• net sales margin, EBIT margin,
• net cost-plus mark-up, EBIT mark-up,
• return on assets (ROA).

The choice of the appropriate indicator depends on the functional profile of the entity – different ones are applied for manufacturers, distributors, or service providers.

An incorrect choice of profitability indicator may result in the wrong determination of the transfer price, which could in turn lead to a challenge of the settlements, income adjustments and the imposition of tax sanctions.

Importantly, transaction profitability is compared with the results of the benchmarking analysis, also reported in the TPR, as well as with industry data. For this reason, it is crucial that profitability falls within the arm’s length range – and, if it does not, that appropriate supporting arguments are available.

Key point: the profitability level should be verified before the financial year-end and before approval of the financial statement. This allows for possible adjustments, minimises tax risk and helps to avoid problems when filing the TPR.

Benchmarking analysis as the basis for determining profitability

Benchmarking analysis shows what levels of profitability are arm’s length.

It may be:

• internal – comparison with the entity’s own transactions with unrelated parties,
• external – analyses based on databases.

External data sources include global financial databases, industry reports or local registers. The tax authorities use the same or comparable databases and have appropriately trained staff in this area. A competence centre of the National Revenue Administration (KAS) in Kraków also operates, which results in greater centralisation and specialisation of the authorities’ expertise.

The main challenges associated with benchmarks are:

• limited availability of comparable data,
• the specificity of niche industries,
• methodological and qualitative differences.

For this reason, it is essential to provide a sound justification of the chosen methodology for determining transfer prices. More on this topic can be found in our article: https://www.mddp.pl/transfer-pricing-benchmarking-2024-how-to-prepare/

Finalisation of data for TPR – most common issues and how to resolve them

The finalisation of TPR data is the moment when theory meets practice. At this stage, the following challenges may arise, among others:

• what to do if there are discrepancies between actual profitability and the benchmark range,
• whether and when to apply transfer pricing adjustments,
• how to proceed if financial data are not yet final.

In practice, it often happens that a company – despite having a correct settlement model – reports profitability in the TPR below or above the benchmark range. The dilemma then arises whether to make a profitability adjustment or whether arguments exist to point to specific market circumstances (e.g. inflation, demand fluctuations).

Case study – IT company and TPR data finalisation

Example: in 2024, an IT company provided programming services to related parties. The year was difficult – the company incurred high investment costs related to the development of new applications and the hiring of additional specialists.

Effect: profitability reported in the TPR form was below the lower quartile. For the management, this posed a real tax risk – the authorities could challenge the settlements and demand a profitability adjustment.

The process of finalising data for the TPR involved three steps:

1. Re-verification of financial data – costs directly related to core activity were separated from one-off investment costs.
2. Assessment of extraordinary events – in particular the costs of developing new applications, which reduced the current result but did not reflect the actual efficiency of the services.
3. Preparation of a defence file – detailed justification of the reduced profitability, showing that the same trend affected the entire IT industry.

Conclusions:

• Proper documentation and analysis are crucial for TPR.
• At the TPR finalisation stage, it is worth analysing one-off factors that may distort indicators.
• Profitability outside the range does not automatically mean a lack of arm’s length character.

Case law on profitability and TPR reporting

The reliability of benchmarks and the assessment of profitability are increasingly reaching the courts. Judgments indicate that errors in the assessment of the arm’s length nature of transactions and in the use of benchmarking analyses are made by both taxpayers and tax authorities.

• Regional Administrative Court (WSA), 28 December 2022 (I SA/Bk 467/22) – we discussed this judgment in detail in our article: https://www.mddp.pl/not-only-the-median-constitutes-the-market-level/
• WSA, 15 February 2023 ( I SA/Bk 519/22) – the authority cannot limit itself to the median as the sole point of arm’s length reference. This is an important signal for taxpayers: the analysis of the profitability of related parties must be embedded in business realities.
• Supreme Administrative Court (NSA), 8 May 2025 (II FSK 1097/22) – the tax authorities cannot disregard a taxpayer’s benchmark. A taxpayer’s reliable analysis must be assessed and confronted with the authority’s reasoning.

The case law confirms that TPR reporting and profitability analysis must be grounded in business realities.

Summary and practical recommendations

TPR profitability is a key element of TPR. To mitigate tax risk, it is advisable to:

• analyse results against the benchmark on a cyclical basis throughout the year,
• ensure consistency of the Local File, tax returns and data in the TPR,
• consider a profitability adjustment where profitability falls outside the arm’s length range.

The Ministry of Finance emphasises that TPR reporting is a preventive tool.

It is therefore worth treating TPR not only as a formal obligation, but also as a tool for building tax security. A reliable benchmarking analysis, a carefully thought-out finalisation of TPR data and ongoing monitoring of results are the foundation of effective risk management in the transfer pricing area.