TP functional profile – what you need to know

Yesterday, a draft amendment to the CIT Act was published on the website of the Government Legislation Center. It seeks to simplify and adapt to the current economic situation the provisions introduced as part of the Polish Deal. The draft introduces regulations previously announced by the Ministry of Finance (which we mentioned in our post on 23 June).

We listed the key changes in transfer pricing proposed in the draft:

  • raising the documentation threshold for direct tax haven transactions from PLN 100k to PLN 200k;
  • changing documentation thresholds for indirect tax haven transactions depending on the type of transaction – a threshold of PLN 2.5 million has been added for financial and commodity transactions, while the basic threshold of PLN 500,000 remains in place for other types of transactions;
  • clarification that in the case of indirect tax haven transactions, the regulations apply to the beneficial owner of the receivables for a given transaction; therefore, the obligation to test for the beneficial owner in a tax haven or settlements related to the received receivable with the paradise entity is to apply only to the entity receiving the receivable;
  • clarification that in the case of domestic transactions, the documentation obligation for indirect tax haven transactions is only to apply to the recipient of the receivable, as this entity knows whether it is the beneficial owner or if it transfers the receivables – which entity is the beneficial owner;
  • abandoning the presumption concept – it was proposed to exclude the application of the provisions on indirect tax haven transactions if the entity receiving the receivable from a controlled transaction or transaction other than a controlled transaction does not make settlements related to the received receivable in the tax year or financial year or is not related to the paradise entity. In order to meet the conditions, it will be necessary to prove it in the statement of the entity receiving the payment;
  • facilitating the identification of the beneficial owner – in order to verify the documentation obligation, a statement is enough by the entity receiving the payment stating whether this entity is the actual owner of the debt and, if not, whether the actual owner is an entity from a tax haven;
  • transitional provisions enabling the retroactive application of the proposed solutions to transactions initiated and not completed before 1 January 2021 and made after 31 December 2020;
  • repealed Article 11k 2a on direct tax haven transactions and transfer of the regulation to Article 11o section 1 of the CIT Act.

The draft states that, as a rule, the amending regulations are to enter into force on 1 January 2023. However, the changes to transfer pricing are to become valid on the day following the announcement date of the entry into force of the regulations, i.e. probably still this year. The draft has been submitted for consultation at present, so the proposed regulations may still be changed.

The proposed amendments introduce some of the simplifications previously requested by taxpayers and advisers. They clarify the matters that have raised doubts so far and should be assessed positively in this respect. At the same time, taxpayers have been working intensively in recent months to fulfil the obligations under the current wording of the regulations, in particular in the field of tax haven transactions. Let’s hope the changes introduced – that have taken into account the opinions of taxpayers, businesses and advisers – may bode well for the future. Maybe in subsequent changes to the regulations, the Ministry of Finance will take into account the opinions collected in this round of opinion-gathering.

Follow this link to read the draft amendment:

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