Personal links and the exemption from transfer pricing documentation (article 11n(5) of the Polish Corporate Income Tax Act)

Do personal links preclude the exemption from the obligation to prepare transfer pricing documentation? 

Article 11k(1) of the Polish Corporate Income Tax Act (“CIT Act”) imposes on taxpayers the obligation to prepare local transfer pricing documentation for controlled transactions carried out between related entities, where the value of such transactions exceeds the statutory thresholds. At the same time, the CIT Act provides for a number of exemptions from the obligation to prepare such documentation. One of them is the exemption specified in Article 11n(5) of the CIT Act, pursuant to which transactions between entities whose links with local government units (hereinafter also referred to as “LGUs”) and the State Treasury constitute the exclusive basis for recognising them as related entities are exempt from the documentation requirement. In practice, this means that in certain cases transactions carried out between such entities may not require the preparation of local transfer pricing documentation, despite exceeding the thresholds referred to in Article 11k(1) of the CIT Act. 

In practice, the key issue is how the condition of the exclusivity of the links should be understood. In particular, the question arises whether the occurrence of personal links (e.g. through the presence of LGU representatives on a company’s governing bodies) should be treated as an additional, independent link that eliminates the possibility of applying the exemption, or rather as a secondary element connected with the exercise of ownership and supervisory rights. The positions taken so far by administrative courts and tax authorities do not provide a clear answer in this regard. 

Position of the National Revenue Information (KIS): personal links and the lack of exemption from transfer pricing documentation (article 11n(5) of the CIT Act) 

In the vast majority of cases, tax authorities consistently present the view that any form of personal link between an LGU and a municipal company should be treated as an independent basis for recognising a relationship, functioning separately from the capital (ownership) link. 

As a result, in the authorities’ view, the exemption provided for in Article 11n(5) of the CIT Act cannot be applied in situations where, in addition to the LGU’s shareholding, an additional personal element appears – for example where a municipal treasurer or another LGU representative holds a position on the supervisory board of a municipal company. This position is confirmed in numerous individual tax rulings, in which the authorities indicate that any additional personal links exclude the possibility of benefiting from the exemption in question. 

However, within the interpretative practice of the National Revenue Information, the first sporadic departures from the existing line of interpretation can be observed with regard to the impact of personal links on the applicability of the exemption from the obligation to prepare local transfer pricing documentation provided for in Article 11n(5) of the CIT Act. 

For example, in an individual ruling dated 25 February 2025 (ref. no. 0111-KDIB1-1.4010.5.2021.11.MF), the Director of the National Revenue Information emphasised that in the analysed factual circumstances personal links, such as the deputy treasurer’s membership of the supervisory board, did not negatively affect the documentation exemption, as these persons did not exercise a significant influence (within the meaning of Article 11a(2)(2) of the CIT Act) over key business decisions taken by the company. 

Although this position remains at odds with the prevailing approach, it may be seen as the first clear indication of a change the current strict and literal approach of tax authorities towards a more functional interpretation, similar to the direction seen in the case law of administrative courts. 

Case law of the Voivodship Administrative Courts (WSA) and the Supreme Administrative Court (NSA): personal links and the exemption from transfer pricing documentation 

Administrative court rulings are increasingly moving away from the restrictive, literal interpretation of Article 11n(5) of the CIT Act presented by tax authorities. Courts more frequently apply a purposive interpretation, taking into account the rationale of the regulation and the specific nature of relationships between LGUs and municipal companies. They emphasise that the provision was primarily intended to limit documentation obligations in situations where transactions take place within the public sector and the risk of non-arm’s length pricing is limited. 

For this reason, personal links resulting from the exercise of ownership rights by LGUs should not automatically preclude the application of the exemption. In this spirit, the majority of courts hold that the exemption may also apply where personal links exist, provided that they are secondary to the ownership relationship and do not arise from separate, independent private or business relationships. For example: 

• • in its judgment of 15 June 2023 (ref. no. I SA/Kr 420/23), the Voivodship Administrative Court in Kraków held that the exemption from the obligation to prepare local transfer pricing documentation may apply in a situation where, alongside capital links, personal links exist, provided that they arise exclusively from the ownership functions exercised by the LGU; 

• • in its judgment of 11 October 2024 (ref. no. II FSK 325/22), the Supreme Administrative Court ruled that additional personal links do not exclude the exemption if they result exclusively from capital links with an LGU, emphasizing the need to interpret the provision in a manner aimed at limiting documentation obligations for public sector entities, rather than expanding them. 

As a result, administrative courts shift the focus from the mere form of the link (personal, capital or organisational) to its source and its actual role in the relationship between the LGU and the municipal company. What therefore becomes decisive is whether a given link is a consequence of the exercise of ownership rights by the LGU, including the performance of statutory supervisory and organisational functions, or whether it arises from a separate, independent personal or business relationship that could influence transaction terms in a non-arm’s length manner. 

In practice, this means that the presence of personal links does not automatically preclude the possibility of benefiting from the exemption from the obligation to prepare transfer pricing documentation. What is crucial is their origin and nature – if they are solely a derivative of the LGU’s ownership relationship, courts treat them as secondary and not excluding the exemption, which is consistent with the objective of Article 11n(5) of the CIT Act, namely to limit documentation obligations within the public sector. 

Despite the fact that a liberal, purposive interpretation of Article 11n(5) of the CIT Act is becoming increasingly well-established in the case law of administrative courts, rulings of a more restrictive nature can still be identified, closer to the approach presented by tax authorities. These judgments refer to the earlier, formalistic line of interpretation, in which decisive importance is attached to the mere existence of a personal link, without analysing its source and its actual role in the relationship between the entities (cf. judgment of the Voivodship Administrative Court of 16 November 2021, ref. no. I SA/Gd 850/21). 

Practical implications for taxpayers 

As a result of the current discrepancies between the approaches of tax authorities and courts to Article 11n(5) of the CIT Act, taxpayers must take into account that: 

• • personal links may be treated as an “additional” element undermining the condition of exclusivity; 

• • identical factual circumstances may be assessed differently (depending on whether a given authority adopts a formalistic or a functional approach); 

• • disputes are often resolved only at the level of the Voivodship or Supreme Administrative Courts, which more frequently accept a functional interpretation; 

• • in cases of doubt as to the applicability of the exemption, an individual tax ruling remains the only instrument limiting tax risk in this area. 

Authors’ view 

Despite the clear emergence of a taxpayer-friendly trend in the most recent case law, it should be noted that the interpretative line regarding the exemption from the documentation obligation in the context of personal links is not yet fully uniform. Tax authorities continue to consistently apply a literal interpretation of the wording “exclusively from capital links”, disregarding the courts’ arguments concerning the functional nature of personal links. In practice, this generates a real risk of interpretative disputes, both at the stage of applications for individual rulings and in the course of potential tax proceedings. 

In this situation, it is advisable to adopt a cautious approach when applying the exemption under Article 11n(5) of the CIT Act, in particular in cases where personal links could be assessed as going beyond standard ownership supervision exercised by an LGU. Until a unified interpretation practice is established, caution in relying on this exemption is recommended, together with safeguarding the taxpayer’s position by obtaining an individual tax ruling. 

Legal basis 

Chapter 1a “Transfer Pricing” of the Act of 15 February 1992 on Corporate Income Tax 
(Journal of Laws of 2025, item 278, as amended) (the CIT Act). 

Related content 

• Documentation and reporting obligations in the field of transfer pricing 

• Links with the State Treasury and the transfer pricing documentation requirement