Transfer pricing adjustments under the magnifying glass of tax authorities – trends in 2023
Marta Klepacz
16 April 2024
Price adjustments are still not a clear-cut issue and raise
What does it mean?
Cost segregation is a detailed identification of fixed assets based on tax regulations and Polish Fixed Assets Classification as well as determining the initial value of fixed assets including indirect costs.
Why is it worth it?
| Goals | Benefits |
Depreciation of fixed assets | Higher depreciation rates available. |
| Real Estate tax | Precisely defined structures to be taxed and their tax base. For an investment located in several communes, tax base is determined for each commune. |
| Preparing real estate (investment) for sale | Transparent structure of fixed assets and better results in due diligence ordered by a buyer. |
| Inventory of property | Property review and the possibility of professional marking of fixed assets. |
| Real Estate clause | In practice, it often turns out that after cost segregation the entity does not meet the definition of a real estate company and the clause does not apply. |
Exemplary calculation
| Fixed Assets | Initial value | Depreciation rate | Depreciation | Minimal CIT on Real Estate | ||||
| Before | After | Before | After | Before | After | Before | After | |
| Wind farm | 1000 | 4,50% | 45 | 20 | 2 | |||
| Foundation for the turbine | 100 | 4,50% | 4,5 | 5 | ||||
| Turbine tower | 250 | 4,50% | 11,25 | 0 | ||||
| Turbine nacelle with generating set | 250 | 7% | 17,5 | 0 | ||||
| Blade and hub | 200 | 7% | 14 | 0 | ||||
| HV cables | 150 | 4,50% | 6,75 | 0 | ||||
| GPO | 50 | 10% | 5 | 0 | ||||
| Total | 1000 | 1000 | 45 | 59 | 20 | 7 | ||
Benefits
Increasing monthly depreciation write-offs up to 2 times.
Up to 3-fold reduction in Real Estate tax on structures.
When do we apply cost segregation procedure?
- At the stage of building / putting investments into use.
- At the investment acquisition stage (Asset deal).
- While the investment is used by an SPV, including after the share deal – subject to certain conditions.
Why external adviser?
During the investment and the stage of putting the investment into use it is necessary to use external providers, because:
- accounting department usually does not have enough time;
- they do not carry out technical investment inspections;
- they do not combine technical knowledge with practice regarding the possibility of separating fixed assets;
- they usually do not provide extensive analytics of fixed assets under construction accounts, so they cannot determine the initial value.
Our experience
We settle various types of investments, either as part of the settlement of newly created facilities or correction of settlements for tax savings purposes:
- wind farms;
- photovoltaics;
- shopping malls;
- office and service complexes;
- office buildings;
- hotels;
- industrial halls;
- warehouses;
- underground parking lots.
Contact
Rafał Kran
Partner | Tax adviser
E: rafal.kran@mddp.pl
T: +48 693 290 919
Łukasz Szatkowski
Manager
E: lukasz.szatkowski@mddp.pl
T: +48 570 898 499
Related services
Related content
CRS/Euro-FATCA reporting for 2023 with persons from Georgia and Ukraine
Dorota Chruściel-Dziekańska
15 April 2024
CRS/Euro-FATCA reporting for 2023 will also include reportable accounts held
Applying the parent–subsidiary exemption in Poland is becoming more difficult
MDDP
12 April 2024
Applying the parent–subsidiary exemption in Poland is becoming more difficult