Are you submitting a TPR? - Don't forget about complimentary services

There are only 3 days left to file the TPR form for taxpayers whose tax year matches the calendar year. When identifying related party transactions that are subject to reporting, remember that they don’t just involve typical commercial or financial transactions. In today’s post, we’ll focus on one of the most easily overlooked business events – complimentary services.  

Unpaid services on the basis of transfer pricing regulations are usually understood as those benefits received from or provided to related parties without separate consideration. In practice, the most common are: gratuitous warranties, loans (less frequently) and transactions related to trademarks and licenses (e.g., their gratuitous transfer or gratuitous use). If such a transaction exceeds the statutory materiality threshold for the type of transaction, it is subject to reporting in the TPR. Failure to comply with this obligation exposes board members to criminal penalties.

Example 1

Company A received a loan from a bank in the amount of PLN 8 million. Under an agreement with the bank, Company B (related to A) provided Company A with a bank guarantee of up to 150% of the liability, i.e. up to PLN 12 million. The value of the guarantee amount thus exceeds the PLN 10 million materiality threshold for financial transactions. The guarantee should therefore be reported by both companies in the TPR form, even if company B did not receive separate consideration for it from company A. If the companies cannot qualify for the documentary exemptions, they also have to prepare transfer pricing documentation for this transaction along with a compliance analysis justifying the validity of the complimentary consideration.

Example 2

Company A uses without remuneration a trademark owned by its affiliate B. The mark is highly recognizable in the market, so its use contributes significantly to Company A’s sales performance. The value of the revenue generated through the trademark is so high that even with a minimal license fee, the value of the consideration charged to B in the tax year would exceed PLN 2 million (the materiality threshold for this type of transaction). Companies must therefore report this transaction in the TPR and (if they do not qualify for exemptions) prepare documentation.

Is every complimentary consideration always free of charge?

Not necessarily. When analyzing whether a transaction between related parties is complimentary, the lack of equivalence of mutual benefits is taken into account. For example, if two related parties provide each other with guaranties of the same guarantee amount, the mutual benefits may be considered equivalent. The key element here is the similar value of the mutual benefits.

Complimentary consideration may be an income

If a complimentary consideration is identified, it should be analyzed in each case whether income should be recognized on this account. For example, in a recent ruling of the WSA in Bialystok[1] stated that if the value of mutual guaranties provided to each other is not equivalent (identical in value), it means that one of the entities has not provided an equivalent benefit to the other entity. According to the court, the resulting difference in amounts when mutual guaranties are matched will constitute taxable income.

In a similar vein, the Director of the KIS stated in an individual interpretation dated December 18, 2023[2] , in which he stated that in the case of receipt of a gratuitous loan, income will be the value of interest that the borrower would have received at arm’s length.

It is worth noting that the obligation to prepare transfer pricing documentation with a compliance analysis itself occurs when the value of the transaction (in the case of financial transactions, the value of the loan amount or the guarantee amount) exceeds the materiality threshold, regardless of the mere amount of revenue recognized.

How to justify the market nature of the gratuitous benefit?

The absence of a consideration in a transaction must be adequately justified. For transactions of this type, a compliance analysis is usually prepared, which describes the business rationale that guided related parties in deciding to provide the consideration free of charge. It should logically, based on sound economic rationale and the characteristics of the transaction, indicate the arm’s length nature of its terms (e.g. equivalent consideration).

If a taxpayer recognizes tax income from a complimentary consideration, a benchmarking analysis can help in determining what the arm’s length remuneration (guarantee fee, loan interest, royalty, etc.) would be. The analysis determines what remuneration under similar conditions independent parties would agree to.


[1] Judgment of the WSA in Bialystok dated 29.11.2023, ref. SA/Bk 377/23

[2] Sygn. 0114-KDIP2-2.4010.582.2023.1.SP

Łukasz Kluczka

Łukasz Kluczka

Manager in the Transfer Pricing Team

Tel.: (+48) 503 972 120