Do not delay with your benchmarking study and transfer pricing documentation. You should begin preparation straight away!
From 2017 on, taxpayers will have to face up to the revolution within the scope of transfer pricing documentation. New regulations introduce extended obligations pertaining to drawing up such documentation and submitting reports and declarations pertaining to transactions with related parties to the tax authorities. Contrary to appearances, this will happen sooner than it seems. In practice, the preparations for the changes should begin TODAY with a thorough review of the prices used in settlements with related parties, accompanied by a BENCHMARKING STUDY and compiling other data necessary to draw up the documentation according to the new principles.
It is worth emphasizing that Polish tax authorities pay now great attention to transfer pricing issues and arm’s length nature of transactions made by related parties which is reflected in objectives adopted by the Ministry of Finance for the year 2016. Many taxpayers had a chance to experience it directly by receiving individual correspondence sent by tax authorities. The Ministry of Finance has been prepared both technically and as far as the substance is concerned. There have been specialised transfer pricing competence centres functioning (in Warsaw and Łódź) for some time within the tax structures. Competence centres are special units whose task is to monitor, analyse and supervise the areas, which according to the Ministry of Finance, are extremely exposed to the State budget proceeds reduction. Moreover, the Ministry of Finance and these competence centres have recently gained access to specialist databases such as Amadeus, Orbis and QTPA. We have observed more tax inspections oriented at transfer pricing verification at our customers recently.
New documentation from 2017 onwards
The new regulations introduce a number of groundbreaking changes and new obligations associated with documenting transactions between related parties. These, inter alia, include an obligation to:
- draw up new, extensive transfer pricing documentation in the so called local file, master file, and country-by-country reporting format,
- draw up a benchmarking study,
- submit declarations that transfer pricing documentation has been compiled,
- attach reports on transactions concluded with related parties to tax returns (CIT-TP and PIT-TP report).
Each obligation will depend on the taxpayer’s revenue or costs and thus, if in a given tax year revenues or costs exceed:
- 2 million euros – the taxpayer will face an obligation to prepare basic documentation (local file)
- 10 million euros – the taxpayer will additionally have to draw up a benchmarking study
- 20 million euros – the taxpayer will be obligated to draw up information on the entire group of related parties (master file)
- 750 million euros – it will be obligatory to draw up a revenue and tax paid report pertaining to subsidiaries as well as business locations and permanent establishments (country-by-country reporting).
Why today?
Despite the fact that the above information obligations will only apply to transactions concluded in 2017 and onwards (with the exception of CBCR, which will already apply in 2016), it is necessary to start thinking how to fulfil them right now, and, in particular, to perform benchmarking analyses for transactions with related parties concluded this year and in previous years.
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You should start thinking about benchmarking today because: if the result of the analysis performed in 2017 or at the start on 2018 demonstrates that the applied prices did not reflect market prices, the adjustment of 2017 prices may be burdened with certain practical problems, and there is a possibility that, for business reasons, it may even be impossible. Under such circumstances an analysis constituting part of the transfer pricing documentation would immediately show that the prices are not at arm’s length. However, with the benchmarking study data at hand in advance, it will be possible to:
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What needs to be done today
The actions which should not be put off:
- analyse inter-group transactions and define risks and determine a plan for the necessary actions within the scope of documenting transfer prices pursuant to the new principles
- draw up a benchmarking analysis for the used prices
- verify the results of the comparative analysis in terms of the adopted transfer pricing policy
- draw up and implement procedures associated with the methodology for preparing new documentation and submitting reports on transactions with related parties on time.
TP documentation in the sights of tax authorities
The new obligations which taxpayers will have to observe will provide tax authorities with an excellent source of information on transactions concluded with related parties and as such will facilitate identification of entities for inspections. In practice this means that:
- tax authorities are already looking closely at transfer prices and they have the tools to do that
- the new principles for preparing TP documentation are more rigorous
- a thorough preparation for disputes with the authorities within the scope of used transfer prices is desirable (as is the case in other countries), best started with the performance of a benchmarking study.
Our business proposal
Given our far reaching experience in terms of drawing up transfer pricing documentation, creating and verifying transfer prices policies and benchmarking studies, having the access to the aforementioned databases, we can help you with the following as early as today:
- a benchmarking study within the scope of executed transactions based on Polish and international databases (e.g. Amadeus, QTPA, Bloomberg)
- an analysis of inter-group transactions and defining risk within the scope of the adopted transfer prices policy
- support you in preparing a transfer pricing policy and procedures associated with the methodology for drawing up documentation and submitting reports on transactions with affiliated entities on time
- drawing up tax documentation compliant with the new requirements (local file, master file and country-by-country reporting).
Once the amended regulations come into force we will also be able to support you:
- to draw up CIT-TP / PIT-TP report and the obligatory declarations
- during a possible transfer pricing inspection.
Benefits
The transfer pricing tax advisory services we provide ensure:
- mitigation of the risk of tax authorities applying a 50 per cent penalty CIT rate
- protection of individuals responsible for tax settlements (e.g. board members, financial directors) against possible criminal and fiscal liability
- reduction of the risk of tax authorities questioning the level of applied transfer prices
- any adjustments to transfer prices are made in a safe and optimum manner
- from the tax authorities’ point of view
- timely satisfaction of the reporting obligations the updated regulations will introduce
- that responsibility associated with the process of drawing up transfer prices documentation is taken off your staff.