Another exemption unavailable for tax haven transactions

Taxpayers for the first time need to identify possible transfer pricing obligations resulting from the so-called Indirect Tax Haven Transactions. The matter still raises a number of doubts. One of them was highlighted in the individual tax ruling of 15 June 2022 (ref. no. 0111-KDIB1-2.4010.676.2021.1.DP).

Determining obligations triggered by tax haven transactions – the challenge

The authorities believe tax haven transactions (direct and indirect) cannot benefit from any exemptions available for other transactions subject to transfer pricing obligations.

This position was taken by the authority towards the obligations of a taxpayer who purchased services from a third party in an open tender procedure. Given the high value of the transaction, the taxpayer checked the contractor and learnt from it that it has a legal representative in Hong Kong.

This served as the basis for the taxpayer to classify the transaction as made indirectly with a tax haven entity. Still, the taxpayer believed it may benefit from the exemption from documentation obligations – this is because the remuneration was established in an open tender procedure.

Obligations made more precise or extended?

The taxpayer and the authority argued about the understanding of the combination of regulations relating to the obligations of tax haven transactions and those governing documentation exemptions.

In the course of 2021, the wording of the regulations indicated that all transactions listed therein were exempt from the obligation to prepare a local file. It was only the amendment for 2022 that clearly stated that tax haven transactions are not to enjoy the exemption.

Therefore, the taxpayer concluded that the exemptions for tax haven transactions are removed starting 1 January 2022. However, the authority was of the opinion that the amendment was actually simply a clarification and not a change of the approach. This is why – according to the authority – exemptions from the obligation to prepare documentation were unavailable for tax haven transactions even before the amendment.

The authority cited the justification for the previous amendment to the regulations (from 2021) whereby the documentation obligations for tax haven transactions were extended. However, this extension only imposed documentation obligation on sales transactions and indirect transactions – the lawmaker made no reference to the possibility of using exemptions for these transactions. Also in the justification of the amendment of 2022 (‘the Polish Deal’), the lawmaker did not address the intention to remove documentation exemptions for tax haven transactions

In the light of the above, the understanding of the amendment for 2022 as excluding the exemption for tax haven transactions or as merely a clarification of previous intentions may raise doubts among taxpayers.

Available exemptions

On the basis of the interpretation, the taxpayer cannot apply any of the available documentation exemptions. It should compile transfer pricing documentation for 2021 for transactions with a third party and report it using the TP-R form.

At the same time, tax haven transactions made starting from 2021 may use the exemption from the obligation to prepare benchmark analyses – it was introduced by the amendment to the transfer pricing regulations under the Polish Deal. This is currently the only exemption available for indirect tax haven transactions. The obligations in this respect will most likely be liberalized under the next amendment to the regulations recently released by the Ministry of Finance.

Apart from the regulations themselves (their introduction remains incomprehensible to us), the assumption that tax haven transactions cannot benefit from documentation exemptions means that transactions with third parties are subject to more stringent obligations than transactions with related entities. This assumption of the lawmaker – which imposes a heavy burden on taxpayers – is clear from the very structure of regulations that are difficult to interpret otherwise. In our opinion, this is not a correct approach to the transfer pricing obligations imposed on Polish taxpayers.