Who submits the TPR form after a merger?

The dynamically changing economic situation, continuous development of competition in most industries and the increase in costs constitute a quite challenge for companies. In order to maintain or improve their market position or minimize operating costs, capital groups decide, for example, to merge companies. Although the merger process itself is regulated by the provisions of the Commercial Companies Code, companies focusing on fulfilling legal, administrative and accounting obligations should also remember to fulfill transfer pricing obligations.

If the acquired company’s transactions are subject to TP documentation and reporting obligations, which of the companies involved in the merger files TPR concerning the acquired company – the acquiring company or the acquired company, or both? What does the new TPR guidebook for 2022 tell us, and how to do it using the new version of TPR form?

New form and new TPR guidebook for 2022 – old approach, but new technical problems

For TPR forms filed after a merger that occurred before 2022, the situation is clear. According to the previous editions of the TPR guidebook for 2019-2021 published by the Ministry of Finance, the way of filing the TPR form depended on whether the merger occurred with or without closing the accounting books of the acquired company. If the books were not closed, controlled transactions conducted during the reporting period by both the acquired and the acquiring company were reported in a single TPR form submitted by the acquiring company. On the other hand, if the books of account were closed, transactions conducted by the acquired company up to the merger were reported in a separate TPR form for that company, submitted by its legal successor, the acquiring company.

However, in the case of a merger, how to properly file the TPR form according to the new version, which is effective for 2022? The Ministry of Finance published an updated TPR guidebook at the end of December last year, including changes that result from the new structure of the TPR form. According to the new TPR guidebook for 2022, the determination of the filing entity remains unchanged, depending on whether the merger occurred without closing the books of the acquired company or whether they were closed. In the first case, as in previous years, the TPR form for 2022 is filed solely by the acquiring company. However, the acquiring company in the TPR for its tax year, does not include transactions conducted by the acquired company up to the merger, if the books of the acquired company have been closed. Nevertheless, this does not result in an exemption from the obligation to report these transactions, they must be presented in a separate TPR form concerning the acquired company. Therefore, with regard to the new TPR form for 2022, there are no substantive changes regarding the entity submitting the form concerning the acquired company. But how to technically do it using the new TPR form?

Not so easy – technical aspects of filing the TPR after a merger

As theory is the basis for good practice, while reality often differs from it. The new TPR form, effective for the period beginning after December 31st, 2021, does not provide separate sections with the data of the entity that is submitting the TPR and the entity to which the information relates. In practice, this means that it is not technically possible for the acquiring company to indicate in the TPR that it relates to the acquired company. Therefore, taxpayers have doubts about the technical aspect of submitting the TPR for the acquired company.

So how should the acquiring company fulfill its reporting obligations considering the technical lack of section with the data of the entity that is submitting the TPR information? Because the TPR guidebook does not provide obvious answers and solutions, we encourage you to contact MDDP experts who will support fulfilling TP obligations.

The technical issue of submitting TPR concerning acquired company may seem even more challenging when the acquiring company is a foreign entity and the Polish target company ceases to exist overnight. Should the foreign acquiring company, even if it is not subject to reporting obligations under Polish TP regulations, submit TPR form concerning the Polish acquired company? If the TP obligations are not fulfilled, a significant risk arises for the members of the Management Board of the acquired company, but also for other persons responsible for the financial matters of the company.

Doubts therefore also arise as to when to submit the TPR after the merger. Submitting a TPR form before the acquisition would be unreasonable due to the ongoing tax year, while after that date it would be impossible due to the removal of the acquired company from the National Court Register. In the event that the company no longer exists, it is not possible to grant the power of attorney (UPL-1) required to sign the TPR information. So how to proceed in such a situation? There are more similar doubts, and the answers are not clear. Nevertheless, the responsibility for fulfilling transfer pricing obligations remains with persons responsible for the affairs of the acquired and acquiring company, mainly their members of the Management Board. Even if the acquired company no longer exists, in case the tax authorities verify the arm’s length character of transactions for the period before the merger, penal and fiscal liability lies with the members of the Management Board who then performed their functions in the acquired company. And the acquiring company, as of the date of the merger, becomes the legal successor of the acquired company, and thus also acquires all the rights and obligations of the acquired company. Therefore, members of the acquiring company’s board of directors are also liable for failure to fulfill TP obligations after the merger.

And we remind that, as a standard rule, the deadline for submitting the TPR form to the tax office is the end of the 11th month after the end of the taxpayer’s tax year (even if the tax year was shortened). Therefore, in the case of mergers with closure of books that occurred in the first quarter of 2023, this is the last moment to fulfill TP reporting and documentation obligations for 2023. It is important to note that the new version of TPR form includes a TP statement in which the taxpayer confirms the preparation of TP documentation and the arm’s length character of the transactions. Therefore, it is worth to examine the mergers of companies occurred in capital groups in 2023, whether local transfer pricing documentation (which, with few exceptions, also includes a transfer pricing analysis, the so-called benchmark) should be prepared for these transactions.

Additional challenges – problematic TP restructuring

Taxpayers’ doubts arise not only from the technical aspects of submitting a TPR concerning the acquired company and the transactions conducted by it. The merger transaction implies additional challenges – should the merger transaction itself also be included in the TPR form, and if so, how to report it correctly?

If the value of a merger transaction exceeds the statutory documentation threshold, the merger transaction itself also needs to be reported in the TPR. But how? If the particular transaction meets the definition of restructuring within the meaning of the TP Regulation, it should be reported in the TPR under the transaction category codes relating to restructuring. If, on the other hand, the transaction does not meet the conditions for restructuring, then it should be included in the TPR information under other codes most relevant to the subject of the transaction. Proper qualification of a merger requires individual analysis and assessment in each case. Already at the stage of planning a merger, it is worthwhile to comprehensively analyze the issue, as well as the effects of the transaction within the transfer pricing regulations. This will allow to consciously address issues that may raise doubts with regard to the tax authorities and provide safety from the risk of challenging the validity and arm’s length character of transactions.