Micro and small businesses out of TP obligations?

Starting 2021, related entities with the status of a micro or small business may prepare local files without a benchmarking analysis. Also in the TPR form, taxpayers do not fill in the boxes related to the analysis.

Until now, these entities were only released from the need to file transfer pricing documentation upon the authorities’ request within 30 days, if there were circumstances indicating a probability of lowering the value of the controlled transaction.

As a reminder: a micro or a small business is an entity that meets the following conditions jointly in at least one of the last two financial years:

• average annual employment of less than 10 employees for a micro-business or 50 for a small business, and

• annual net turnover from the sale of goods, products and services and financial operations not exceeding the equivalent of EUR 2m expressed in PLN for a micro-business or EUR 10m for a small business, or the total assets of its balance sheet prepared at the end of one of these years not exceeding the equivalent of EUR 2m expressed in PLN for a micro-business or EUR 10m for a small business.

The exemption from the need to prepare benchmarking analyses is a major simplification. It aims to reduce administrative burden and financial outlays for taxpayers. The change itself should be assessed positively. Benchmarking analyses are the most time-consuming and cost-generating part of TP documentation. Businesses freed from the obligation to compile it will undoubtedly feel relieved.

One important note – the exemption does not mean the tax authorities cannot verify the arm’s-length nature of a transaction. Moreover, in the statement on having prepared the documentation, the entity must also confirm the transaction was made on an arm’s length basis. Therefore, many businesses may still opt to prepare the benchmarking analysis. They will chose to secure against possible penal fiscal sanctions (in the scope of the statement on the arm’s length nature of the transaction). Also, in the event of a possible inspection, the analysis will serve as the basis for labeling the transaction arm’s length.

Interestingly enough, establishing the status of a micro or small business may be problematic. For example, businesses may have doubts about determining the level of average annual employment or net turnover from financial operations or the period for which they have to verify the terms of a transaction from TP perspective.