1 January 2021 marks the launch of new regulations in tax law regarding documentation obligations in the field of transfer pricing. These expand the list of transactions subject to documentation obligations.
- NEW DOCUMENTATION OBLIGATIONS
Main changes in transfer pricing regulations address transactions with entities from countries applying harmful tax competition, the so-called “tax havens”. List of countries at the end.
The revised documentation obligation now applies to:
- transactions other than the controlled ones (other than transactions with related parties)made with an entity with its place of residence, registered office or management board in the territory or in a country applying harmful tax competition, if the value of this transaction for the tax year, and in the case of companies without legal personality for the financial year, exceeds PLN 100,000net (about EUR 25,000 net);
- controlled transactions or transactions other than the ones controlled, if beneficial owner of receivables has a place of residence, registered office or management board in a “tax heaven”, and the value of this transaction for the tax year exceeds PLN 500,000 net (about EUR 110,000 net).
The legislator refers to the statutory definition of the beneficial owner. However, the important part for case no. 2) above is that the lawmaker presumes that the actual beneficial owner has a place of residence, registered office or management in the so-called “tax haven” when the business partner of a taxpayer (or a company without legal personality) makes settlements in the tax year with an entity having its registered office or management in the so-called “tax haven”. This means that if a business partner of the Polish entity (and its beneficial owner) is not located in a “tax haven”, but makes any settlement with an entity having its registered office or management in a “tax haven”, then it is presumed that the beneficial owner is an entity from the so-called “tax haven”. As a consequence, a taxpayer (or a company without legal personality), making transactions exceeding PLN 500,000 (about EUR 110,000 net). with a business partner not located in a country applying harmful tax competition, will have to check each time that the contractor does not make settlements with entities from “tax havens”. If the business partner does make such transactions, the transaction between the Polish taxpayer and this very business partner must be documented in the Local file.
While reviewing these circumstances, the taxpayer or company without legal personality should exercise due diligence.
- EXTENDED DOCUMENTATION REQUIREMENTS
The new regulations extended documentation requirements for transactions with entities located in “tax havens”, in relation to typical transfer pricing documentation. The documentation relating to such a transaction must also include an economic justification, in particular a description of the expected economic benefits, including tax benefits (benefit test). In line with the justification to the amended regulations, the economic benefit should be understood as broadly as possible and each time it should be examined whether a related entity, acting economically rationally, would decide to make such a transaction.
- ACTIONS TO BE TAKEN BY THE TAXPAYER
The new regulations on transfer pricing may prove a major challenge for Polish taxpayers in terms of verifying business partners and preparing transfer pricing documentation that will address the new items.
In practical terms each transaction with an annual value exceeding PLN 500,000 (EUR 110,000 net) triggers the need to verify that the contractor does not make further settlements with entities from “tax havens” or whether its beneficial owner is from a “tax haven”.
Now is the time to make sure the process of reviewing business partners under the documentation obligations does not disturb operations and business relations.
- TAX HAVENS
The Regulation of the Minister of Finance of March 28, 2019 on the determination of countries and territories applying harmful tax competition in the field of corporate income tax explicitly mentions 26 countries (territories) where harmful tax competition is applied in tax systems. Among them are: Principality of Andorra, Anguilla – Overseas Territory of the United Kingdom of Great Britain and Northern Ireland, Antigua and Barbuda, Sint-Maarten, Curaçao – countries included in the Kingdom of the Netherlands, Kingdom of Bahrain, British Virgin Islands – Overseas Territory of the United Kingdom of Great Britain and Northern Ireland, Islands Cook – Self-Governing Territory Associated with New Zealand, Dominica, Grenada, Sark – Dependent Territory of the British Crown, Hong Kong – Special Administrative Region of the People’s Republic of China, Republic of Liberia, Macau – Special Administrative Region of the People’s Republic of China, Republic of Maldives, Republic of Marshall Islands, Republic of Mauritius, Principality of Monaco, Republic of Nauru, Niue – Self-Governing Territory Associated with New Zealand, Republic of Panama, Independent State of Samoa, Republic of Seychelles, Saint Lucia, Kingdom of Tonga, Virgin Islands – United States Unincorporated Territory, Republic of Vanuatu.
In addition, the list of “tax havens” has been completed in accordance with the Notice of the Minister of Finance of July 7, 2020, containing the list of countries and territories indicated in the EU list of non-cooperative jurisdictions for tax purposes adopted by the Council of the European Union. It includes Republic of Fiji, Guam, Cayman Islands, Republic of Palau, Sultanate of Oman, Republic of Trinidad and Tobago, American Samoa.
If you want more insights and information on the impact on your business, please contact:
Magdalena Marciniak Magdalena.Marciniak@mddp.pl tel. +48 22 322 68 88
Magdalena Dymkowska Magdalena.Dymkowska@mddp.pl tel. +48 22 322 68 88
or your advisor from MDDP.
 According to the definition of the beneficial owner indicated in article 4a point 29) of the CIT Act (hereinafter: ‘beneficial owner’).