New businesses and the exemption from transfer pricing analysis

In transfer pricing, commencing business activities may result in a broader scope of documentation obligations than for entities that have been operating in the market for a longer period. This is because Article 11q(3b) of the Polish Corporate Income Tax Act (CIT Act) makes the exemption from the obligation to prepare a transfer pricing analysis conditional upon having the status of a micro or small enterprise in the “last tax year” – whereas an entity that has only recently commenced operations does not yet have such a completed year. The available tax rulings issued by the National Tax Information (KIS), as well as a literal interpretation of the provision, tend to support an approach that is unfavourable to newly established entities. However, the issue is not clear-cut – the purpose of introducing the exemption and the provisions of the Entrepreneurs’ Law provide arguments in favour of an alternative approach.

What does the exemption from transfer pricing analysis involve?

The exemption arises under Article 11q(3a) of the CIT Act and the corresponding Article 23zc(3a) of the Personal Income Tax Act (PIT Act). Local transfer pricing documentation may omit a benchmarking analysis or a compliance analysis in two cases:

• where the controlled transaction is entered into by related parties that qualify as a micro or small enterprise within the meaning of Article 7(1)(1) and (2) of the Entrepreneurs’ Law;
• where the transaction is not a controlled transaction referred to in Article 11o(1) of the CIT Act – i.e. a so-called tax haven transaction with an unrelated entity.

Importantly, this is a simplification concerning only the scope of local transfer pricing documentation – it does not exempt the taxpayer from the obligation to prepare such documentation. Therefore, if the value of a transaction exceeds the applicable documentation threshold and no other exemption applies, the taxpayer is still required to prepare Local File documentation, but may omit the benchmarking analysis or compliance analysis. In practice, this represents a significant simplification, as preparing such an analysis is typically one of the most time-consuming and costly elements of the documentation process.

Benchmarking analysis vs compliance analysis – what is the difference?

Pursuant to Article 11q(1)(3) of the CIT Act, a transfer pricing analysis may take the form of either a benchmarking analysis or a compliance analysis. A benchmarking analysis involves comparing the terms of the transaction under review with the terms applied between unrelated parties. A compliance analysis is used where such a comparison cannot be made or is not appropriate. The exemption available to micro and small enterprises covers both forms of analysis – there is therefore no need to replace a benchmarking analysis with a compliance analysis.

Who qualifies as a micro or small enterprise?

The CIT Act does not independently define the terms “micro enterprise” or “small enterprise”. Instead, it refers to the definitions set out in Article 7(1)(1) and (2) of the Entrepreneurs’ Law.

The employment criterion must be met together with one of the two financial criteria – turnover or total balance sheet assets. Amounts expressed in euros are converted into Polish zloty using the average NBP exchange rate applicable on the last day of the financial year for which the enterprise’s status is being determined. Importantly, for the purposes of the exemption in question, the definitions set out in the Entrepreneurs’ Law apply rather than the definition of a small entity under the Accounting Act – the criteria and thresholds provided for in these two acts differ, and confusing them is a common practical error.

Key provision: Article 11q(3b) of the CIT Act and the “last tax year”

For transfer pricing purposes, the relevant reference point is not simply any period during which an enterprise meets the criteria for a micro or small enterprise. Article 11q(3b) of the CIT Act specifies that these conditions must be assessed by reference to the tax year preceding the year for which the Local File is prepared. In practice, this means that although the definition of a micro or small enterprise comes from the Entrepreneurs’ Law, the CIT Act specifies the period for which compliance with the relevant criteria must be assessed for the purposes of the transfer pricing analysis exemption.

This interpretation is supported by the tax ruling practice. In a ruling dated 23 February 2023 (ref. 0111-KDIB2-1.4010.610.2022.1.AR), the Director of the National Tax Information (KIS) indicated that the conditions concerning employment, net turnover and total assets should be assessed for the tax year preceding the year for which the documentation is prepared. An analogous position was presented in a ruling dated 21 December 2022 (ref. 0111-KDIB2-1.4010.730.2022.1.DD).

This is precisely where the issue arises for newly established businesses. If a company was incorporated in the year for which the documentation is being prepared, it does not have a preceding tax year to which Article 11q(3b) of the CIT Act refers.

The question therefore arises as to whether the absence of such a year automatically prevents a newly established entity from applying the exemption, or whether the legislation allows its status to be determined in another way.

New businesses: what is the issue?

An entity commencing business activities does not have a completed tax year preceding the year under review. At first sight, therefore, there is no period for which the conditions set out in Article 11q(3b) could be verified.

The Entrepreneurs’ Law does, however, provide a specific rule for entities operating for less than one year: pursuant to Article 7(4) of that Act, projected net turnover and average annual employment are determined based on data for the last documented period, annualised accordingly.

Whether this rule is also relevant for the purposes of Article 11q(3b) of the CIT Act remains subject to debate.

Literal interpretation argues against the exemption

Since Article 11q(3b) requires the conditions to be met in the “last tax year”, understood as the tax year preceding the year for which the documentation is prepared, such a year does not yet exist for an entity in its first year of operations. Under this interpretation, there is therefore no period against which compliance with the relevant conditions could be demonstrated and, consequently, no basis for applying the simplification.

A strict reading of the conditions governing eligibility for the simplification may also support this approach. Where the legislator has expressly specified the period over which an enterprise’s status should be assessed, it is difficult to substitute another period solely on the grounds that the preceding year does not exist for a newly established entity.

The purpose of the provision supports an alternative approach

However, an examination of the purpose of the provision leads to a different conclusion. The explanatory memorandum to the draft legislation introducing the simplification indicates that its purpose was to reduce the burden on the smallest entities arising from the financial and time costs associated with preparing transfer pricing analyses, without differentiating taxpayers based on their length of time in business. A newly incorporated company may often meet the criteria for a micro or small enterprise, while the cost of preparing a benchmark may represent a significant burden, particularly at the early stage of its operations.

It should nevertheless be noted that it is not clear whether this purposive interpretation allows the exemption to be applied in the taxpayer’s first year of operations. On the one hand, where a newly incorporated company meets the criteria for a micro or small enterprise, excluding it from the simplification solely because it has no preceding tax year may be difficult to reconcile with the purpose of the provision. On the other hand, the literal wording of the legislation links eligibility for the exemption to the taxpayer’s status in the last tax year. For a company operating in its first year, such a reference period does not exist, raising doubts as to whether the exemption can be applied. The issue has not yet been definitively resolved.

The taxpayer is therefore faced with an interpretative gap rather than an unequivocal prohibition on applying the simplification.

The legal issue should be distinguished from the business decision

Under the current legislation, it is not clear whether a newly established business is required to prepare a transfer pricing analysis for its first year of operations.

The practical recommendation is nevertheless more straightforward: irrespective of whether the taxpayer benefits from the domestic exemption from the obligation to prepare Local File documentation or from the exemption from preparing a transfer pricing analysis available to micro and small enterprises, it is worth considering preparing a benchmarking analysis or compliance analysis.

Neither exemption releases the taxpayer from the requirement to apply transfer pricing on an arm’s length basis. Ultimately, the taxpayer bears the risk associated with determining the appropriate terms of the transaction and, without an appropriate analysis, it may be more difficult to demonstrate that those terms reflect conditions that would have been agreed between independent parties.

A benchmark is one of the key tools for verifying and documenting the appropriateness of the terms applied. This is also particularly relevant in the context of the TPR information and the statement confirming the arm’s length nature of transfer prices submitted as part of the TPR filing.

Accordingly, preparing an analysis, even where it is not formally required by law, may provide an important safeguard for the taxpayer’s position in the event of a potential tax audit.

Whose status matters: the documenting entity or its counterparty?

For the purposes of the exemption, only the status of the entity obliged to prepare the Local File is relevant – the status of the other party to the transaction is not a condition for applying the simplification. This was confirmed by the Director of the National Tax Information in a ruling with ref. 0111-KDIB1-3.4010.423.2022.1.AN, which indicated that a company assesses its own status and is not required to determine the status of its shareholder as a separate entity.

In practice, therefore, a micro enterprise may omit the transfer pricing analysis even in transactions with a large related entity, including a foreign related entity.

What is not covered by the transfer pricing analysis exemption?

The application of the exemption is sometimes incorrectly equated with a complete absence of documentation obligations. This assumption is both incorrect and potentially costly – the simplification removes one element of the Local File and nothing more.

Irrespective of whether the exemption is available, the terms of a controlled transaction should be established on an arm’s length basis. If, during a tax audit, the tax authority determines that the terms of a transaction differ from those that would have been agreed between unrelated parties, it may determine the taxpayer’s income (or loss) without taking into account the terms arising from the related-party relationship. This may result in an increased tax base and the imposition of an additional tax liability.

What will change in 2026 and 2027 for micro and small enterprises?

On 31 March 2026, the Ministry of Finance published on the Government Legislation Centre’s website a draft amendment to the PIT and CIT Acts and the Fiscal Penal Code. At the beginning of June 2026, a substantially revised version was presented. The proposed changes include, among other things:

• an exemption from the requirement to report financial ratios in the TPR information;
• abandoning the specific rules for signing TPR information in favour of the general rules under the Tax Ordinance;
• changes concerning the statement confirming the arm’s length nature of transfer prices, as well as amendments to deadlines and fiscal penal liability rules.

It should be noted that the content of the draft may change during the further legislative process. At this stage, therefore, the proposed amendments should not be presented as the applicable legal framework.

From the perspective of newly established entities, the draft does not, however, resolve the issue discussed in this article. None of the proposed amendments directly addresses this matter, and the structure of Article 11q(3b) remains unchanged in the draft. Consequently, the issue remains primarily one of interpretation rather than legislation.

At the same time, in view of the proposed tightening of fiscal penal liability for individuals responsible for tax settlements, decisions regarding the preparation and completeness of the required documentation should not be postponed.

Recommendations for newly established entities

The following checklist sets out the key steps to be taken during the first year of operations.

• Identify related parties – determine which entities qualify as related parties within the meaning of Article 11a(1)(4) of the CIT Act.
• Determine the transaction terms – establish the terms that would have been agreed between unrelated parties, taking into account not only the price but also, for example, payment terms and security arrangements.
• Verify the documentation thresholds – PLN 10 million for goods and financial transactions and PLN 2 million for services and other transactions, calculated separately for each homogeneous controlled transaction.
• Determine your tax year – check whether the first tax year has been extended pursuant to Article 8(2a) of the CIT Act.
• Assess your status for the preceding year – in accordance with Article 7(1)(1) and (2) of the Entrepreneurs’ Law; if no such year exists, move to the next step.
• Decide whether to prepare a benchmark – irrespective of whether the exemption applies, preparing a transfer pricing analysis is recommended from a tax risk management perspective.
• Document the rationale for your decision – record the legal basis and reasoning; in the event of a dispute, this will provide evidence that the decision was made consciously and on an informed basis.
• Establish a compliance timetable – and assign responsibility for each deadline.

For a taxpayer whose tax year coincides with the calendar year, the relevant deadlines are as follows: Local File documentation must be prepared by the end of the 10th month following the end of the tax year, TPR information must be submitted by the end of the 11th month, and documentation must be provided within 14 days of receiving a request from the tax authority (Article 11s(1) of the CIT Act).

Key takeaways

• The exemption under Article 11q(3a) of the CIT Act applies only to the obligation to prepare a benchmarking analysis or compliance analysis, and does not exempt the taxpayer from preparing Local File documentation as such.
• For the purposes of the exemption, the status of a micro or small enterprise is assessed for the tax year preceding the year for which the documentation is prepared.
• For a newly established business, the issue is the absence of such a reference year. The literal wording of the legislation may argue against applying the exemption, whereas the purpose of the simplification and the provisions of the Entrepreneurs’ Law provide arguments for an alternative approach. The issue is therefore not clear-cut.
• In the following year of operations, the issue generally ceases to arise – the first year of operations becomes the year on the basis of which eligibility for the exemption can be assessed.
• Irrespective of the interpretation adopted, an exemption from the obligation to prepare a transfer pricing analysis does not exempt the taxpayer from applying the arm’s length principle. The taxpayer bears the risk associated with the arm’s length nature of its transactions, while an appropriate analysis is an important tool for verifying and demonstrating that the terms applied are arm’s length.

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