On 11 September 2015, Sejm adopted an Act on changing the Act of income tax from individuals, corporate tax and some other acts (Sejm’s Print no 3697).
Amendment of income tax acts introduces number of changes to regulations concerning transfer pricing and its documentation.
The project has already been approved by Sejm and went to the Senate. It is anticipated that it will be adopted and submitted for signature by the President at the last sitting of the Sejm and the Senate.
These changes come into force on 1 January 2016.
It proposes changes to tax laws, introducing a three-standardized and partially centralized documentation between related parties.
This documentation will consist of:
- Master file – which presents information at a group level, in particular concerning the adopted group policies to transaction pricing, led by a group of economic activity (the proposed regulation article 9a, act 2.c updop and article 25a, act. 2c updof)
- Local file – aiming to present by the national body linked to detailed information on transactions or other events included in the books, taking place between them and other entities in the group, in this part of the documentation domestic related entity will be required to demonstrate that its relations with other related parties in the group comply with the conditions stated between unrelated entities (proposed regulation article 9a, act 2b and art. 25 a Act 2b updof)
- Country-by-country reporting – which will include aggregated information on the level o the group of related entities regarding the size of the income tax aid and the amount of business done by the entities in the group in different countries (proposed regulation article, act 7-9 updop), reports will be submitted in the tabular form and according to OECD recommendations will concern only the biggest related entities (income of above 750 million euro)
In line with the draft taxpayers whose income or expenses exceed in the preceding tax year the equivalent of 10 million euro will be required to prepare tax documents containing further description of the analysis of comparative data used to calculate settlements, and if the income or expenses exceed a given taxpayer in the previous tax year is equivalent of 20 million euro, the taxpayer will be required to prepare a dossier containing additional information about master file.
The scope of subject and object in application of the regulations on transfer pricing will change. If the project enters into force, taxpayers will be required to prepare transfer pricing documentation not only for business transactions with related parties, but also in relation to other events included in the books that have a significant impact on the amount of their income (loss) and other events, which conditions have been established (or imposed) from entities associated with them, including liquidity management agreements, cost sharing agreements, contracts of a non legal person, joint venture agreements or similar agreements.
It is also proposed to introduce a legal definition of materiality conditions to indicate that in the case of taxpayers whose revenues in the year preceding the tax year exceeded the equivalent of 2 000 000, but no more than 20 000 000 euro for transactions or events of one kind whose joint value exceeds in the tax year the equivalent of 50 000 euro plus 5 000 euro for every 1 000 000 income above 2 000 000 euro.
Big changes will also include the scope of transfer pricing documentation. The draft stipulates that the tax documentation will henceforth include:
1. A description of transactions or other events which above, including liquidity management agreements, cost sharing agreements, made between the table person or company who is not a legal entity in which it participates and entities associated with them including:
- Indication of the nature and object of such transactions or other events
- Financial data, including the cash flows relating to such transactions or other events
- The identity of the affiliated entities engaged in these transactions or engaging these events
- Description of the course of these transactions or other events, including functions performed by the taxpayer, which is referred in article 1f – a company who is not a legal person and its affiliates, involved their balance sheet assets and off-balance sheet, human capital and their risks
- Indication of the method and calculation of income (losses) of the taxpayer and the reasons for their choice, including calculation algorithm settlements concerning these affecting income (loss) of the taxpayer, which is referred in article 1f – including other shareholders of the company who are not a legal persons
2. In the case taxpayers:
- Whose revenues or expenses, within the meaning of accounting regulations established under maintained books of accounts exceeded in the year preceding the tax year, the equivalent of 10 000 000 euro or
- Engaged in non-agricultural activity or special agricultural production in the form of a non-legal person, whose income or expenses, as defined by the company’s accounting regulations established under maintained books of accounts exceeded in the previous financial year within the meaning of these provisions an equivalent of 10 000 000 euro
3. Beyond description, which is mentioned in point 1, a description of the data analysis of independents entities or figures from an independent entity recognized as comparable to the conditions or other events referred to in article 1, hereinafter referred to as “comparative data analysis”, used to calculate the settlement, referred to in point 1 that along with the source of the data:
4. Description of taxpayer’s financial data, or by a company that is not a legal person, which allows comparisons settlements with the data resulting from the approved financial statements, if the obligation of the draw up is the result of the binding of the taxpayer or the company’s accounting regulations;
5. Information about the taxpayer, company that is not a legal person includes a description of:
- Organizational and governance structure of the business
- Subject and scope of the business
- Pursued economic strategy, including carried out in the fiscal year or in the year preceding the tax year transfers between related parties of economically important functions, assets and risks affecting income (loss) of the taxpayer
- The competitive environment;
Documents, in particular:
- Contracts, agreements between concerning subjects or other documents concerning transactions or other events, which are referred in act 1., articles of associations not being a legal person, agreement of cooperation or agreement of a similar matter, documenting rules awarding rights for shareholders to participate in the profit and loss.
- Agreement concerning income tax concluded with countries other than the Republic of Poland, it is concerning transactions or other events referred to in act 1, in particular prior pricing agreements
Comparative data analysis should include comparative data on entities domiciled in, or managed on the territory of the Republic of Poland, if the data is available to the taxpayer. In the absence of data to analyze comparative data, the taxpayer shall be attached to the tax documentation description of conformity conditions of transactions and other events, agreed with the related parties with the terms of which would be made between independent entities.
In the case of taxpayers engaged in non-agricultural activity or special agricultural production in the form of a non-legal person, if the company creates and related entities a company within the meaning of the accounting regulations at least two affiliates and income of the company or its costs within the meaning of accounting, exceeded the previous year the equivalent of 20 000 000 euro, tax documentation should also include information about a group of related entities, which includes the company, including in particular:
- indication of a related party who drew up information about a group of related entities, together with the dates of submission of his annual tax return;
- the organizational structure of the group affiliates;
- description of the rules determining the transaction price (transaction price policy) applied by a group of related entities;
- description of the subject and scope of economic activities carried out by a group of related entities;
- description owned, created, developed and used in a business by a group of related entities of significant intangible assets;
- description of the financial situation of the entities forming the group, together with the consolidated statements of related entities forming a group of related entities;
- Description concluded by forming a group of related entities agreements in matters of income tax with the tax administrations of countries other than Poland, including unilateral advance pricing agreements.
What is important in the case of tax documentation is that it has to be drawn up no later than the closing date set for filing an annual tax return, provided that the description of the financial data of the taxpayer within 10 days from the date of approval of the financial statements of the company other than the taxable person or legal entity. This does not change the existing rules, it is still at the request of tax authorities or fiscal control authorities, taxpayers will be required to submit tax documentation within 7 days of receiving the request.
Required periodic review of transfer pricing documentation will be required but not less than once per tax year (the comparative analysis would be subject to verification, as a rule, every 3 years, unless the change in economic conditions to significantly influences the analysis of comparative data justifies a review in the occurrence of this change).
The tax authorities are also equipped with the ability to request from the taxpayer, within 30 days of receipt of the request by the authority verifying – submission of the dossier also to transactions whose value does not exceed the limits of documentation and materiality thresholds, but the circumstances of the case show that she can be underestimated in order to avoid the obligation to produce documentation.