Transactions with tax haven entities

Transactions with entities having their place of residence, registered office or management board in one of the countries applying harmful tax competition [1] are subject to transfer pricing regulations.

Pursuant to the amended CIT Act, starting 2021 the documentation obligation covers all transactions made with a tax haven entity where the annual value exceeds:

· PLN 2,500,000 in the case of a financial transaction, and

· PLN 500,000 in the case of other transactions.

The obligation applies both to controlled transactions, i.e. made with related entities, and to transactions made with third parties (transactions other than controlled)!

[1] Countries applying harmful tax competition are listed in the Regulation of the Minister of Finance of 28 March 2019 on determining the countries and territories applying harmful tax competition in the field of corporate income tax (Journal of Laws of 2019, Item 600)

A TRANSACTION WITH A TAX HAVEN ENTITY – WHEN EXACTLY DOES IT HAPPEN?

Some examples of transactions with a tax haven entity subject to the transfer pricing documentation obligation:

  • import of goods or services, including the receipt of an invoice from a tax haven entity or payment made to such an entity,
  • export of goods or services, including issuing an invoice to a tax haven entity or when the invoice payer is such an entity,
  • making a different transaction with a tax haven entity like: articles of association or a joint venture, making or receiving a contribution in kind, increasing share capital, transferring intangible assets, providing services without remuneration, receiving fixed or intangible assets, making available a trademark, re-charging, granting or obtaining a loan, guarantee, surety, credit.

The most common tax haven transactions are made with entities from:

HONG KONG
PANAMA
BAHRAIN
MONACO
MAURITIUS
LIBERIA

[1] Countries applying harmful tax competition are listed in the Regulation of the Minister of Finance of 28 March 2019 on determining the countries and territories applying harmful tax competition in the field of corporate income tax (Journal of Laws of 2019, Item 600)

WHAT ARE THE TAXPAYER’S OBLIGATIONS IN THE CASE OF TAX HAVEN TRANSACTIONS?

A taxpayer identifying tax haven transactions – exceeding the annual limits – in its activities for 2021 should meet these documentation and reporting obligations:

Transaction made with a related entity from a tax haven Transaction made with a third party from a tax haven
  • transfer pricing documentation (with an additional item regarding the economic justification of the transaction, in particular a description of the expected economic benefits, including tax benefits),
  • transfer pricing documentation (with an additional item regarding the economic justification of the transaction, in particular a description of the expected economic benefits, including tax benefits),
  • transfer pricing analysis
  • transfer pricing analysis
  • TPR form
  • TPR form
  • statement on having prepared transfer pricing documentation and the arm’s length nature of the transaction
  • statement on having prepared transfer pricing documentation and the arm’s length nature of the transaction

HOW CAN WE HELP?

Support in verifying documentation and reporting obligations

  • regulations addressing transactions with tax havens have changed over the recent years. It is worth checking whether all obligations have been correctly identified for 2021 and for previous years and immediately meet the documentation and reporting obligations.

Support in meeting all documentation and reporting obligations

  • preparing transfer pricing documentation, including additional items required for transactions with tax havens,
  • support in completing the TP-R form and the statement on having prepared transfer pricing documentation,
  • support in filing a voluntary disclosure if obligations for previous years have not been met,
  • support in possible control of the transaction by tax authorities.

Feel free to contact us

Magdalena Marciniak

Partner | Tax adviser | Head of the Transfer Pricing Practice
E: magdalena.marciniak@mddp.pl
T: (+48) 665 746 360

Magdalena Dymkowska

Partner
E: magdalena.dymkowska@mddp.pl
T: (+48) 501 108 261

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