The Ministry of Finance has published a draft “Explanations” on transfer pricing documentation, regarding the presumption of due diligence.
Let us remind you that, in accordance with the amended income tax regulations, taxpayers are required to prepare transfer pricing documentation also in transactions with unrelated parties, if the beneficial owner of such entity has its place of residence, registered office or management board in a country applying harmful tax competition, where the transaction value exceeds PLN 500,000 in the tax year.
Let us emphasize once again that this obligation is difficult to implement in practice. Moreover, the legislator introduced a controversial regulation according to which it is presumed that the beneficial owner has his place of residence, seat or management in the territory or in a country applying harmful tax competition, if the contractor makes settlements with an entity established or management in such territory.
The published draft “Explanations” refers to this regulation.
The Ministry indicates the following circumstances:
- taxpayers should broadly understand the term “settlements”, where it covers settlement of settlements (receivables / liabilities) with the counterparty, and the form can be both monetary and non-monetary (e.g. compensation);
- the provision is presumptive, so if the taxes establish that the other party to the transaction makes settlements with the “paradise” entity, it applies and the obligation to prepare local transfer pricing documentation arises;
- the taxpayer should arrange to carry out these transactions by all available methods.
Further, the Ministry proposes two practical paths to follow:
- in case of unrelated entities, for the exercise of due diligence, it is sufficient to: (1) obtain a declaration by the taxpayer from the contractor – after the end of the tax year – which shows that one does not make settlements with the “paradise” entity, (2) verification of its truthfulness with other available sources;
- in the case of related entities, additional information sources should be verified, such as: TP’s group documentation, CbC information, financial statements, ownership structure or the opinion of a professional advisor (e.g. legal advisor or tax advisor).
The analyzed regulation is quite controversial. Nevertheless, the position presented in the draft “Explanations” gives taxpayers specific guidelines on how to fulfill this obligation. It is important to verify your procedures in order to adjust them to the new obligations.
The presented project is currently being consulted