Which transactions are not subject to documentation obligations?
There are transactions or activities between related entities that may at first glance imply transfer pricing obligations. They are actually not controlled transactions in the context of TP regulations. Since Local File is compiled for a ‘controlled transaction’, you should verify that the business event in question fits the definition of a ‘controlled transaction’. Then, you may face a question: which events are a controlled transaction and which can be considered transactions not subject to documentation obligations.
Answer to this question can be found, among others, in the general interpretation of the Minister of Finance of 29 December 2021 on the definition of a controlled transaction (reference number: DCT1.8203.4.2020) (hereinafter: the general interpretation on the definition of a controlled transaction). It explains in detail the conditions to be met for a given event to be a controlled transaction. However, there is no defined list of transactions that a taxpayer can look into when assessing the need to prepare transfer pricing documentation. In this respect, you can only rely on the case-law and the position of the tax authorities expressed in interpretations or responses to a parliamentary question.
So far, tax authorities have looked into four types of transactions and considering them transactions that do not fit the definition of a controlled transaction. More specifically, they stated these transactions do not meet the condition of an economic activity. According to tax authorities, these activities do not fit the definition of a controlled transaction:
Responding to the parliamentary question no. 19562, the Ministry of Finance explained that a preliminary agreement does not feature the characteristics of a controlled transaction – this is because it is not an economic activity, but only an obligation to make a specific agreement in the future. The position was confirmed in the general interpretation on the definition of a controlled transaction – it stated that a preliminary agreement is not subject to the documentation obligation.
Payment of dividends
A dividend payment cannot be labelled an economic activity as it is related to the functioning of a company – as stated by the Ministry of Finance in response to the parliamentary question no. 9368. Therefore, a dividend payment does not fit the definition of a controlled transaction. Thus, it is not subject to the obligation to prepare transfer pricing documentation. The Ministry confirmed this approach in a general inerpretation.
Payment of profit by a company which is not a legal person to its shareholders and the partner of such a company receiving its profit
According to the Director of the National Tax Information (individual interpretation of 12 February 2021, reference number 0113-KDIPT23.4011.891.2020.1.MS), the payment of profit by a partnership is not a controlled transaction, so it is not covered by the obligation to prepare transfer pricing documentation. As in the case of the payment of dividends, it was stated that the profit paid to shareholders is a consequence of the activities of the partnership, and not an economic activity as such. This position was also confirmed in the general interpretation. However, remembered that the obligation to prepare the documentation is in place for the transaction of making or amending a partnership agreement made between related entities.
Additional contribution made in line with the Code of Commercial Companies and Partnerships (KSH)
In its general interpretation, the Ministry of Finance also referred to another institution governed by the Code of Commercial Companies and Partnerships (KSH): additional capital contributions. As indicated, partners of a partnership have no influence on the amount of additional payments and there is no ‘paid for’ nature involved typical of mutual contracts. Therefore, the additional capital contributions should not be considered an economic activity, which means that there is no obligation to prepare transfer pricing documentation in the event that additional payments are made in a financial year.
Supplementary capital contribution
An individual tax interpretation by the Director of the National Tax Information (KIS) of 5 July 2022 (reference number 0111-KDIB1-1.4010.208.2022.1.MF) stated that a payment made by a Polish company to the supplementary capital of another entity under German regulations is not a controlled transaction under Polish transfer pricing regulations; as such, it is also not subject to documentation obligations. Tax authority agreed with the position of the applicant. The latter listed numerous similarities in terms of contributing to additional capital contributions under the Polish Code of Commercial Companies and Partnerships and contributing to the supplementary capital under the provisions of the German Commercial Code (HGB). Therefore, it was indicated that it is unjustified to distinguish between these similar activities for transfer pricing purposes only because one of them is performed pursuant to legal regulations other than Polish.
What does it mean for the taxpayers?
The approach taken by tax authorities in these matters should be definitely seen as beneficial for taxpayers. Their TP documentation and reporting obligations are limited. However, doubts remain in the case of other or similar transactions which tax authorities have not yet specifically addressed. You need to pay special attention when analyzing transactions made in a given financial year to reveal possible obligations in the TP area.
Consultant in the Transfer Pricing Team
Tel.: (+48) 503 972 920