Changes to the regulations concerning off-shore transaction documentation requirements
On 25 August 2022, a governmental bill was submitted to the Sejm (i.e. the lower house of the Polish parliament) proposing to amend the act on corporate income tax and certain other statutes. The bill puts forward significant amendments to transfer-pricing legislation, i.e. repealing the provisions on indirect off-shore transactions and raising documentation thresholds for direct off-shore transactions.
Indirect off-shore transactions
Since 2021, the taxpayers entering into transactions with other parties (whether related or unrelated entities) whose value in a given fiscal year exceeded PLN 500.000 have been required to draw up tax documentation if the ultimate beneficial owner, for the purposes of the CIT Act, is an entity having its place of residence, registered seat or place of management in a tax haven (the so-called ‘indirect off-shore transactions’).
According to the statement of reasons for the bill, the provisions in the wording described above would not effectively achieve the expected aim, which is preventing the transfers and concealment of income in tax havens. Given the above, the bill sets out to repeal the obligation to apply the arms-length principle and the documentation requirement for indirect off-shore transactions.
Direct off-shore transactions
As the law stands at present, taxpayers are required to draw up transfer-pricing documentation for transactions with related or unrelated entity having a place of residence, registered seat or place of management in state or territory pursuing harmful tax competition (the so-called ‘direct off-shore transactions’) if the value of the transaction(s) exceeds PLN 100.000 in a given fiscal year.
The bill proposes to raise the current documentation thresholds for those transactions. Hence, according to the proposed changes, the thresholds will be:
- PLN 2.500.000 for financial transactions, and
- PLN 500 000 for transactions other than financial ones.
Importantly, under the interim provisions, taxpayers will be in a position to elect to apply the new regulations to the transactions commenced, but not completed by 1 January 2021 and transactions concluded after 31 December 2020. Consequently, if the provision are adopted in an unchanged form, this will already mean a lack of obligation to request the declarations from the contractual parties of having a status of ultimate beneficial owner and not having to keep documentation of off-shore transactions for 2021.
The proposed amendments should be assessed positively as the current regulations result in considerable administrative overload on businesses, disproportionate to the potential benefits expected by the National Revenue Administration from obtaining the information, which has often been pointed out by taxpayers and tax advisors alike.
Anna Skórska, Transfer Pricing Coordinator, ATA Tax Sp. z o.o.
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