Poland: Transfer pricing measures in proposed legislation
Discussion focusing on transfer pricing and tax haven documentation measures in recently proposed legislation
Transfer pricing and tax haven documentation measures in recently proposed legislation
Poland’s government on 28 June 2022 published proposed legislation that would, among other items, clarify the obligation of entities required to submit transfer pricing reports and would amend the documentation requirements for transactions with entities located in “tax haven” jurisdictions.
In general, the proposed legislation would amend corporate income tax provisions enacted as part of the “Polish Deal”—that is, the legislation amending the income tax laws affecting corporations and individuals, as well as other tax provisions, that was passed in October 2021 and is generally effective as of 1 January 2022. Read TaxNewsFlash
The following discussion focuses on the transfer pricing and tax haven documentation measures in the recently proposed legislation.
Clarifying the obligation of entities required to submit transfer pricing reports, providing the head of the tax office with information about taxpayer contracts with non-residents (controlled transactions)
The proposed legislation aims to bring systemic changes in terms of clarifying the obligation of entities required to submit transfer pricing reports, with measures that the head of the tax office competent for the taxpayer is to be provided with information about taxpayer contracts with non-residents and specifically with regard to controlled transactions.
The requirement to prepare and file a report on contracts entered into with non-residents would exclude entities required to provide transfer pricing reports under provisions of the corporate income tax law (Article 11t(1)) and provisions of the individual (personal) income tax law (Article 23zf(1)). This means that an exemption from the requirement to prepare and file a report on contracts entered into with non-residents would not apply with regard to entities that, when submitting transfer pricing reports under these measures of the corporate or individual income tax laws, disclose their tax haven transactions. Consequently, these entities—after meeting certain statutory conditions—would be required to submit both the ORD-U file and a transfer pricing report.
Moreover, under the proposed legislation, certain current provisions of the corporate income tax law and individual income tax law would be reorganized and transferred to other statutory provisions.
Tax professionals have observed that there is a proposed retroactive effective date for these amendments, but subject to interim provisions. To address the situation of those entities that are currently exempt from the requirement to file the ORD-U form, the transitional provision would maintain this exemption for eligible controlled transactions for tax years beginning after 31 December 2020, but no later than 31 December 2022.
Amendments to the provisions about documenting tax haven transactions
The proposed legislation would enhance the current documentation thresholds (materiality thresholds) for direct and indirect transactions with entities located in “tax haven” jurisdictions. In practice, this proposal would narrow the scope of groups of entities required to submit the relevant documentation and the number of transactions covered.
The proposal would double the documentation materiality threshold for direct tax haven transactions, while in instances of indirect transactions, the threshold would depend on the transaction type (regarding the proportions stipulated by the material provision). Therefore, it is expected that the basic materiality threshold would remain at the level of PLN 500,000. However, for financial and commodity transactions, the threshold would be five times higher at PLN 2.5 million.
There is also a measure in the proposed legislation intended to clarify that the material provision would relate to the beneficial owner of the receivable with regard to the tax haven transaction. Moreover, there would be a departure from the standard regarding the presumption of the residence of the beneficial owner in a tax haven, with an exclusion of the documentation requirements in certain situations.
Effective date measures
The proposed amendments would be effective 1 January 2023, except for provisions related to requiring Local files for tax haven transactions which would be effective as of the day of announcement of the proposed legislation.
Read a June 2022 report prepared by the KPMG member firm in Poland
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