Meeting transfer pricing obligations is a time-consuming process, so we encourage early planning of tasks in this area. One of the first issues that taxpayers must address is identifying homogeneous transactions.
Defining a controlled transaction as homogeneous is a crucial element in determining documentation obligations for transfer pricing. Article 11k, Section 5 of the Corporate Income Tax Act (the “CIT Act”) outlines several criteria used to determine whether a transaction can be considered homogeneous. These include:
Homogeneity of the transaction in an economic sense;
Comparability criteria;
Methods for verifying transfer prices;
Other significant circumstances of the controlled transaction.
The CIT Act also specifies that the value of a homogeneous controlled transaction is determined regardless of the number of accounting documents, payments made or received, and related entities involved in the transaction. The value of the transaction should be considered separately for each homogeneous controlled transaction, as well as separately for the cost and revenue sides.
The key element in identifying a homogeneous transaction is evaluating it from the perspective of its characteristic features. For example, a company providing the same type of service to multiple related entities should not treat each transaction with a separate contractor as a distinct controlled transaction. Instead, it should identify the conditions under which the transaction takes place and—if those conditions are comparable—recognize the provision of services to multiple related entities as a single transaction, considering the total value of the transaction with all related counterparties as the value of the controlled transaction.
Moreover, since documentation thresholds are established separately for the revenue and cost sides, if a company provides and purchases comparable services, it should not sum or offset the values of sales and purchases when determining documentation obligations. Instead, it should consider the purchase and sales categories separately.
Homogeneity of a transaction in an economic sense means that all its components are assigned within a single homogeneous transaction, even if the method of calculating the transfer price differs for each component. For example, if a company provides rental services to its related entities and simultaneously invoices costs related to the use of utilities, it should not treat these actions separately but should consider them as a homogeneous transaction because the essence of the rental and the utility cost re-invoicing are closely linked. Conversely, if a company receives both a loan and a guarantee from its related entity, it should recognize them as separate controlled transactions because their economic substance is different.
Other circumstances influencing the classification of a transaction as homogeneous may arise from simplifications or exemptions in documentation obligations under the CIT Act. For example, a service transaction that partly meets the safe harbor conditions under Article 11f of the CIT Act should not be considered homogeneous if part of the service is not covered by this exemption. Similarly, a transaction involving multiple entities should not be considered homogeneous if parts of the transaction are eligible for exclusions under Article 11n of the CIT Act.
The value of homogeneous transactions conducted with so-called “tax haven” entities is determined differently depending on whether the tax haven entity is related to the taxpayer. If the tax haven entity is related and the taxpayer conducts transactions with both related entities not located in the tax haven and tax haven entities, the value of the homogeneous transaction will be the sum of the transaction values with each of these counterparties. According to the General Interpretation issued by the Minister of Finance (No. DCT2.8203.2.2021), if the tax haven entity is unrelated to the taxpayer, the total value of the homogeneous transaction with a single counterparty in a given tax year should be analyzed. This means that specific counterparties are evaluated to determine whether transactions with them exceed the documentation thresholds for “offshore transactions,” which are: PLN 2,500,000 for financial transactions and PLN 500,000 for other transactions.
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