Newsletters and alerts

Polish Ministry of Finance announces first successes in transfer pricing audits

11 lutego 2016

As we informed you before, the Polish tax authorities have intensified transfer pricing audits what was also confirmed by the Ministry of Finance in official communications. Recently, the Ministry of Finance has published another statement with a list of recent achievements in the area of transfer pricing audits. Please find below the details.

“In the first quarter of this year, Ministry of Finance announces that they will focus on expanding their own capabilities for auditing transfer pricing as well as in depth analysis of popular profit shifting schemes. In the second quarter of 2016, tax inspections will be carried out focusing on the entities that have paid no corporate tax in recent years despite a significant increase in revenue at that time, as it may suggest implementation of a structure reducing the tax base in Poland to zero."

“The Ministry of Finance also informs of their experiences from previous months. As a result of proceedings in the area of transfer pricing and tax optimization, the Tax Inspection Authority identified a number of schemes aimed at determining the conditions of transactions within a group of companies resulting in non-disclosing income or disclosing income lower than arm’s length. The exposed anomalies identified in the course of appeal and judicial proceedings and tax return adjustments included:

  • the sale of shares held in a limited liability company within the chain of related entities – in order to artificially increase the book value of these shares to the amount obtained from their sale to an independent entity, aimed at avoiding of a taxable income. The understatement for a single tax year due to the above scheme amounted to nearly 500 million PLN
  • a large one-off agreement – concluded with the majority shareholder, relating to future cash flows, in fact aimed at ensuring the foreign parent company to share in the profit from the sale of shares to another company, and the creation of tax loss for the controlled entity. The audit resulted in challenging a tax loss of almost 300 million PLN,
  • not arm’s length licence fees - paid to the related licensor by the licensee (the controlled entity) - a decrease of the rate by 1 p.p. resulted in the decrease of the declared tax costs for four years by approx.25 million PLN,
  • incorrect allocation key for costs / attribution of profits in a Polish branch – due to the incorrect allocation of functions and risks incurred by the headquarters and the Polish branch. The new allocation of profit to the headquarters and the branch was established as a result of tax audit, taking into account the actual functions performed in the transaction. It resulted in corporate income tax assessment of almost 2 million PLN,
  • the granting of loans or guarantees between related parties on terms more favourable than arm’s length, i.e. without the remuneration for the lender and with a repayment period of several decades. The result was a decision assessing additional tax amounting to 7 million PLN.”

As it can be seen, the Ministry of Finance takes the issue of transfer pricing audits seriously and it can be expected that, following their first “successes”, the determination in that matter will be even greater. For this reason, it is worth taking precautionary measures before tax inspectors start transfer pricing audit.

----------------------------------------------------------------------------------------------------

TP WEBINAR

We also invite you to watch the newest Crido Taxand webinar titled “Transfer pricing - the new area for the tax authorities’ increased interest” available here.

----------------------------------------------------------------------------------------------------