TP adjustment – formal eligibility conditions
Today we are addressing formal conditions to be met only in the case of in minus adjustments.
Condition 3: TP adjustment in the books of both transacting parties
The taxpayer must have a statement from a related entity or an accounting evidence confirming that the entity made the TP adjustment in the same amount as the taxpayer.
Originally, the condition imposed an obligation on the taxpayer to have a statement. However, from 1 January 2022, a provision was introduced whereby holding an accounting evidence from a related entity will be sufficient to meet this condition.
The reason is that the TP adjustment made by one of the parties must have a reference in the accounts of the other participant in the same contract, and the accounting evidence is sufficient to meet this condition.
What accounting evidence is appropriate and acceptable at the same time?
Explanations from the Ministry of Finance on the adjustments state that an accounting evidence should be selected individually based on the facts of a case and each time take into account the provisions of other legal acts.
The Ministry of Finance revealed several examples of accounting evidence, including:
- accounting note (debit or credit) collectively adjusting the revenues or costs of a related entity in relation to a given controlled transaction (without referring to a specific invoice/note),
- collective correcting invoice,
- an invoice correcting a given invoice/item from an invoice from a settlement period
Please remember that when choosing the type of accounting document, it is crucial to determine whether the transfer pricing adjustment has VAT implications. Profitability adjustment, which does not consist in adjusting the price or quantity of goods or services in specific supplies between contractors, remains outside the scope of VAT. Therefore, it is not documented with a VAT invoice, but with an accounting note. That is why it is so important to carefully analyze each time which document should be underlying the adjustment. Doubts are also raised about the title that should be given to the adjustment and the way it is recognized in the financial statements.
For more on the matter, please see our entry: ‘Do transfer pricing adjustments affect VAT settlements?’ (Link)
Condition 4: The exchange of information must have a legal basis
The taxpayer for whom the in minus adjustment is made must meet an additional condition: there must be a legal basis for exchanging tax information with the country where the related entity has its place of residence, registered office or management.
Points to remember
In the case of TP adjustments the greatest doubts are related to the need of meeting the condition of using market prices during the year. Taxpayers find them a major challenge. Even though seemingly unproblematic in terms of interpretation and fulfillment, formal conditions do not make it easier for taxpayers to go through the transfer pricing adjustment process.
If you are just at the beginning of this process and ask yourself What should I start with?, feel free to contact our experts and listen to the on-demand training ‘Tax adjustments in VAT, CIT, TP and customs – everything you need to know’. We are convinced it brings answers to many questions on the matter of profitability adjustments.
Senior Manager, Transfer Pricing Team
Tel.: (+48) 533 889 036