On September 15, 2021 the Head of the National Revenue Information Service (hereinafter: the KIS Head) issued a private tax ruling, ref. no. 0111-KDIB1-2.410.300.2021.ANK, concerning the obligation to prepare local transfer pricing documentation under the provisions of the Corporate Income Tax Act (hereinafter: CIT Act).

An application for a private tax ruling was filed by a company with its registered office in Poland, belonging to a capital group whose business consists in the development and commercialisation of residential housing projects. In the course of its activities, the applicant has granted loans to related parties. None of the entities participating in the transaction as an income tax payer in 2020 enjoyed a subject-based exemption, or an object-based exemption in connection with their activity in a special economic zone. Furthermore, some of the related entities with which the applicant carried out a controlled transaction in the tax year 2020 generated tax income for 2020 and some incurred a tax loss.

Pursuant to Art. 11 (1) of the CIT Act, related entities having their place of residence, registered seat or management board within the territory of the Republic of Poland can be exempt from the obligation to prepare the local file, if they fulfil jointly all of the following conditions:

a)            They do not benefit from the exemption referred to in Art. 6 (subject-based exemption),

b)           They do not benefit from the exemption referred to in Art. 17 (1) (34) and (34a) (subject-based exemption with regard to operations in SEZs or PEZ (Polish Investment Zone),

c)            They have not incurred a tax loss.

According to the facts presented in the ruling, the uniform transaction threshold indicated in the regulations was exceeded. Hence, the applicant's doubt was whether, in a situation in which he effected a controlled transaction of a uniform nature with related entities of which some do and some do not jointly satisfy the conditions entitling them to the exemption from the documentation obligation, such obligation exists:

• only with regard to a controlled transaction with those related entities which do not jointly meet the conditions set forth in Art. 11n (1) of the CIT Act,
• or with regard to a controlled transaction with all related parties, even if some of them satisfy jointly the conditions referred to in Article 11n (1) of the CIT Act.

According to the applicant, it is only required to prepare local transfer pricing documentation with respect to the controlled transactions with those related entities which do not fulfil jointly conditions entitling to exemption. 

The above standpoint was confirmed by the tax authority in the individual tax ruling in question. The KIS Head pointed out the wording of Art. 11I (3) of the CIT Act, according to which, when determining the value of controlled transactions of a uniform nature, the value of controlled transactions referred to in Art. 11n of the CIT Act must not be taken into account, which means that the value of a transaction (and the documentation thresholds) will be determined only for that part of the transaction which is not subject to exemption.

Taking into account the above, the obligation to prepare local transfer-pricing file only arises with respect to a controlled transaction with those related parties that do not meet jointly the conditions for exemption (assuming that the other statutory conditions for the obligation to prepare local transfer pricing documentation are met).

Kinga Duszna, Tax Consultant, ATA Tax Sp. z o.o.

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