Transfer pricing documentation – key terms
In today’s global business environment, transactions between related parties are the order of the day. As a result, tax authorities are increasingly focusing on controlling transfer pricing to prevent erosion of the tax base and shifting of profits to lower-tax jurisdictions. One of the key responsibilities of companies is to prepare appropriate transfer pricing documentation within certain deadlines. In this article, we will outline the most important deadlines related to transfer pricing documentation and tips on how to prepare for them.
What are transfer prices?
Transfer prices are the prices used in transactions between related parties, such as subsidiaries, sister companies or other entities controlled by the same entity. Tax authorities expect these prices to be set at arm’s length, i.e. as they would be between independent entities. Transfer pricing documentation is intended to demonstrate that these transactions comply with the arm’s length principle and do not serve the purpose of tax avoidance.
Who is required to prepare the documentation?
The obligation to prepare transfer pricing documentation applies to entities that carry out controlled transactions of a homogeneous nature that exceed certain amount thresholds.
These thresholds depend on the income or expenses earned by the taxpayer in the previous tax year and are:
PLN 10 million for commodity and financial transactions,
PLN 2 million for service and other transactions.
It is worth noting that this obligation applies to both domestic and foreign entities if they operate in Poland.
Key deadlines related to transfer pricing documentation:
1 Deadline for preparation of local transfer pricing documentation (Local File)
Taxpayers are required to prepare local transfer pricing documentation by the date of filing the CIT-8 annual return for the tax year. This means that the deadline is usually at the end of the third month after the end of the tax year. However, due to the possibility of shifting deadlines by the legislature, it is worth keeping track of the current regulations.
2 Deadline for filing a statement on the preparation of documentation
Taxpayers must file a statement on the preparation of local transfer pricing documentation by the date of filing the annual CIT-8 return. This statement confirms that the documentation has been prepared and is complete. Failure to file the statement by the deadline may result in criminal and tax penalties.
3 Deadline for submission of TPR (Transfer Pricing Reporting) information.
TPR information is a detailed report on controlled transactions. Taxpayers are required to file it by the end of the ninth month after the end of the tax year. The information is submitted electronically to the Head of the National Tax Administration.
4 Deadline for preparation of group transfer pricing documentation (Master File).
If a taxpayer belongs to a capital group whose consolidated revenues exceed €200 million, it is required to prepare group transfer pricing documentation. The deadline for its preparation is by the end of the twelfth month after the end of the tax year.
How do you prepare to meet deadlines?
Analysis of controlled transactions
The first step is to identify all related-party transactions and assess whether they exceed quota thresholds. It is a good idea to keep current records of such transactions to avoid surprises at the end of the year.
Start working on documentation early
Preparing transfer pricing documentation is a time-consuming process, requiring the collection of a lot of financial and descriptive data. Starting the work well in advance will help avoid haste and possible mistakes.
Cooperation with advisors
Due to the complicated nature of transfer pricing regulations, it is advisable to enlist the help of specialists in this field. Tax advisors and lawyers can help with the proper preparation of documentation and submission of required statements and reports.
Sanctions for failure to meet deadlines
Failure to meet deadlines related to transfer pricing documentation can lead to serious consequences. Tax authorities may impose financial penalties and, in extreme cases, even criminal penalties on the taxpayer. In addition, failure to provide adequate documentation can result in the tax authority assessing income and imposing an additional tax liability.
Current changes in the regulations
Transfer pricing regulations have undergone numerous changes in recent years. The introduction of new regulations was aimed at bringing Polish law in line with OECD guidelines and increasing the transparency of transactions between related parties. Therefore, it is important to keep abreast of legislative changes and adapt to the new requirements.
Summary
Transfer pricing documentation is a key element in the activities of companies carrying out transactions with related parties. Knowing and adhering to the deadlines associated with its preparation and submission of relevant statements and reports is essential to avoid negative tax consequences. Proper preparation and early work on the documentation will allow you to efficiently meet your obligations and focus on business development.