Does aligning cost base always constitute a transfer pricing adjustment under Article 11e?

For several years, the answer to this question has been subject to debate, as evidenced by the numerous requests for individual tax rulings in Poland submitted by taxpayers. Some case law and tax ruling practice indicated that, where only the cost base changes under a cost-plus model, while the mark-up percentage remains unchanged and there is no verification of the actual arm’s length profitability, the resulting settlement should not be treated as a transfer pricing adjustment.

This position was challenged by three rulings issued by the Supreme Administrative Court (NSA) on 26 May 2026, which set out a different approach from that previously adopted by the Voivodeship Administrative Court (WSA).

The NSA’s position is supported by Article 11e(2) of the Polish Corporate Income Tax Act (CIT Act), which refers to the actual costs incurred or revenues generated that form the basis for determining the transfer price, as well as the requirement for the settlement to comply with the conditions that would have been agreed between unrelated parties.

At the same time, the purpose of the adjustment itself remains equally important. The key question is whether the adjustment is intended to bring the transfer price in line with the arm’s length principle and whether the other conditions set out in Article 11e of the CIT Act are met.

The dispute over a “technical” cost adjustment

In many corporate groups, remuneration for intra-group services is calculated using a cost-plus formula. During the year, settlements are often based on estimated or budgeted costs. Once the relevant settlement period has ended, these amounts are then updated to reflect the actual costs incurred. The mark-up itself – for example, 5% – remains unchanged.

This raises the question of whether aligning the predicted costs with  actual is merely a technical implementation of an agreed pricing mechanism, or whether it constitutes a transfer pricing adjustment within the meaning of Article 11e of the CIT Act.

Previous case law left room for different interpretations

For some time, case law was not consistent. In rulings issued on 5 January 2023 (III SA/Wa 1236/22, III SA/Wa 1237/22 and III SA/Wa 1238/22), the WSA in Warsaw held that replacing estimated costs with actual costs, while maintaining the same mark-up, did not constitute a TP adjustment.

The court held that, in such circumstances, there was no adjustment of the price to an arm’s length level, but merely the application of a previously agreed pricing mechanism. For some time, these rulings served as an important point of reference in practice.

At the same time, the Director of the National Tax Information (KIS) adopted a different position in some individual tax rulings. The authority indicated that, since actual costs form the basis for determining the transfer price and their amount is only known once the settlement period has ended, a subsequent recalculation may fall within the scope of Article 11e of the CIT Act. However, tax ruling practice was not consistent.

The NSA highlights the role of the cost base

A significant shift came with the NSA rulings of 26 May 2026 (II FSK 970/23, II FSK 971/23 and II FSK 972/23), which set aside the earlier WSA rulings. In practice, this means that the three WSA rulings of 5 January 2023 have been removed from legal circulation and can no longer be treated as current rulings in those cases. This does not, however, mean that the alternative approach has been completely eliminated from the case law, particularly in light of the outcome of case II FSK 1127/23, the significance of which cannot yet be fully assessed due to the absence of written reasons.

The NSA pointed out that, under a cost-plus model, the final price is affected by two elements – equally the mark-up and the cost base. It therefore cannot be assumed that, simply because the mark-up remains unchanged, a change in the cost base has no impact on the transfer price.

If the parties agreed from the outset that the final price would be based on actual costs, which would only become known after the end of the settlement period, subsequently bringing the costs into line with the actual costs incurred may constitute a TP adjustment within the meaning of Article 11e. The mere fact that the mechanism was described in the agreement in advance, or that the mark-up remains unchanged, does not exclude the application of this provision.

At the same time, it remains important to determine whether the adjustment is intended to ensure that the settlement complies with the arm’s length principle and whether the other conditions set out in Article 11e of the CIT Act are satisfied.

Practical implications

Following the latest NSA rulings, it will become increasingly difficult to defend the position that adjusting only the cost base does not constitute a transfer pricing adjustment. The current direction of case law indicates that year-end settlements based on actual costs may, as a rule, fall within the scope of Article 11e, even where the mark-up remains unchanged.

This does not mean, however, that every adjustment between related parties will constitute a transfer pricing adjustment. It remains necessary to distinguish such adjustments from settlements resulting from errors, complaints, rebates, refunds or changes in the scope of services, and to identify the purpose of the adjustment. Its classification is determined primarily by its economic substance and purpose, rather than by the way in which it is documented.

Reviewing existing settlement models may be worthwhile

The latest case law provides a good opportunity to review settlement models based on estimated or budgeted costs that are subsequently brought into line with actual costs.

In particular, it is worth checking:

• what pricing formula was agreed at the time the transaction was entered into and whether it reflects an arm’s length price;
• whether the use of actual costs was part of the agreed pricing mechanism from the outset;
• whether the adjustment constitutes a retrospective recalculation of the price or relates to the current settlement;
• what the economic rationale for the adjustment is;
• whether all the conditions set out in Article 11e of the CIT Act have been satisfied.

Each settlement model requires an individual assessment. If you have any doubts regarding the classification of the adjustments applied in your group or the impact of the latest case law on your group’s settlements, please do not hesitate to contact us.