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Simplified APA for tax-deductibility of I/C service charges – key assumptions revealed during the first Transfer Pricing Forum

April 17th, 2018

Last Thursday (April, 12th) the First Transfer Pricing Forum organized by the Ministry of Finance took place. The TP Forum was a gathering of representatives from tax administration, advisory, business and scientific communities to exchange comments and ideas on recent changes in transfer pricing regulations. The key topic on the agenda was the formal and practical approach toward benchmarking analyses, however other related topics were also raised, including the long-awaited plans of the Ministry of Finance to introduce simplified advanced pricing arrangements’ regulations (simplified APA).

As a reminder, the simplified APA is supposed to be a legal / formal tool that, when used by a taxpayer, allows for full tax deductibility of I/C service charges (instead of the limitation introduced from 2018*). So far there were only announcements without any details presented to the taxpayers, who for the past 3,5 months were forced to adhere to the unfavorable rules.

 Here are the key information on the planned simplified APA regulations:

  • Simplified APA will cover low value adding services and simple license agreements,
  • The simplified APA procedure will be based on the taxpayer’s declarations on its functional profile, fee calculations, presented in a standardized form,
  • Simplified APA will be subject to an application fee (smaller than the fee for regular APA, irrespective of the value of the services),
  • Simplified APA will be agreed to confirm the method of calculating transfer prices and the applied margin / mark-up,
  • Simplified APA will be agreed for up to 3 years (as compared to a 5-year period of a regular APA) with an extension possibility,
  • If the volume of the transaction changes significantly, the simplified APA shall not be binding,
  • The simplified APA application process will last 3 months, but may be extended if needed to conclude the agreement,
  • The simplified APA rules will be introduced with an amendment to the Tax Ordinance Act, together with other changes, including applying for APA for a transaction currently subject to tax proceeding,
  • The draft rules introducing the simplified APA regulations will be revealed by the end of April / beginning of May this year.

 Once the draft regulations are published, we will let you know.

 * the new corporate tax regulations in Poland limit the tax deductibility of intra-group services and royalties significantly up to 5% of tax EBITDA over PLN 3m