NRA strikes back

Transfer pricing continues to attract the attention of tax authorities.

Major additional income assessments and successfully completed controls (from the perspective of tax authorities) are summarized by the National Revenue Administration – it releases information on the amount of the additional assessment and the exact scope of the control.

Last week saw two of such releases. This time NRA scrutinized financial transactions. We would like to present the result of the control, which focused on a matter of particular importance in the context of transfer pricing.

Granting security measures free of charge

NRA’s Lower Silesian branch carried out a customs and tax control in an IT company. The authority identified payment security measures resulting from:

  • purchase of goods with deferred payment deadline, and
  • bank guarantees,

for which the Polish company received no remuneration.

These measures were made available to related entities in Czechia and Poland. 

NRA believes these services are paid for in regular market conditions and are a taxable revenue. The value of the free of charge benefits was estimated at over PLN 6.1m. The amended CIT return filed by the Company amounted to PLN 1.4m worth of tax with interest.

Free of charge security measures are in the spotlight for tax authorities in the context of transfer pricing. Taxpayers tend to forget that remuneration should be determined not only in relation to a bank guarantee, but also for purchase / sale with deferred payment date or extended payment date or deferred interest payments. In these cases, the authority may make additional income assessment and establish the arm’s length level of the fee that the entity should receive.

Please note that if the guarantee sum exceeds the documentation threshold of PLN 10m, the taxpayer must additionally document such a transaction in Local File (including with a benchmark analysis). Even if no remuneration is involved for the security measure provided. We have covered the matter more extensively in one of our blog posts.

So, if that is the case, the question is: can the taxpayer sign the statement on arm’s length price level established in the transaction? Pursuant to the ruling of the District Administrative Court (file no. I SA/Wr 269/20), if a taxpayer receives a free of charge surety and recognizes – for tax purposes – revenue from free of charge benefits at an arm’s length level, it will be entitled to file the statement on having prepared the transfer pricing documentation.

Given the above, we recommend you to verify whether your company has been granting such security measures. If so, you should make sure you have appropriate arguments to justify the free of charge benefits or that you have recognized them for tax purposes.