The principal amount as stipulate in the agreement or the principal amount as actually disbursed? Which amounts should be taken into consideration when drawing up transfer-pricing documentation for loans?
The duty to draw up transfer-pricing documentation by related entities follows from the CIT Act, with the aim to demonstrate that the transfer prices agreed upon by related entities were actually set in accordance with the ‘arms length’ principle.
As regards financial transactions (including loan transactions), the obligation to draw up a local file arises where the value of a controlled transaction of uniform character, reduced by the amount of VAT, exceeds the amount of PLN 10 million in a given accounting year.
However, numerous doubts have been raised as to whether, for the purposes of determining the existence or otherwise of the obligation to draw up transfer-pricing documentation, in the case of loans the principal amount as stipulated in a relevant loan agreement or the principal amount actually disbursed in a given year should be taken into account.
On 12 July 2022, the Head of The Head of the National Revenue Information Service (hereinafter: ‘KIS Head’) issued a private tax ruling in the above matter.
The situation involved an entity granting loans to related companies belonging to the same group. The taxpayer’s doubts concerned two situations where the Company granted loans to related entities on the grounds of agreements in the amounts stipulated in the agreements, which exceeding the documentation threshold set at PLN 10 million; however:
- in the first case, the principal amount of the loan disbursed in that year did not exceed PLN 10 million;
- in the other case, the principal amount of the loan was fully disbursed in the year in question, but as a result of part repayment of the principal, in the following year the principal amount was less than PLN 10 million.
The applicant was of the opinion that with respect to the former situation, where the amount of loan as stipulated in the agreement exceeded the documentation threshold of PLN 10 million, but the principal amount of the loan as used in a given year did not – hence a lack of documentation requirement for that transaction. This is because what matters for the purposes of establishing the existence of the obligation to draw up a local file is the principal amount of a loan actually disbursed.
Whereas, in respect of the latter situation, where the principal amount of the loan, which exceeded the documentation threshold of PLN 10 million, was fully disbursed in the year in question, but, as a result of part repayment, the principal amount of the loan was lower than PLN 10 million in the following year – hence the documentation requirement for this transaction only arises in respect of the first year in which the loan was disbursed, but there is no such requirement in respect of the next year in which part of the principal was repaid.
The KIS Head fully affirmed the position presented by the applicant, confirming that in the event of loan transactions, in determining the existence of the documentation requirement, the principal amount actually used or made available (remaining at the other party's disposal) in a given year should be taken into account.
It is to be hoped that the above ruling, being the first one in favour of the taxpayer in this respect, will contribute to establishing a new approach of the tax authorities, favourable to the taxpayer.
Natalia Szymocha, Tax Consultant, ATA Tax Sp. z o.o.
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