The lender cannot be an entity whose place of residence, seat, or management is located in a country or territory applying harmful tax competition. A list of so-called tax havens is defined by the Regulation of the Minister of Finance dated March 28, 2019 (Journal of Laws 2019, item 600). Among the listed countries are, for example, Hong Kong, the Principality of Andorra, and the Principality of Monaco.
One of the simplifications provided in the scope of transfer pricing for taxpayers is the so-called safe harbour. Safe harbour applies to financing transactions, including loans, credits, and bond issuances. The legislator emphasizes loans, which are directly referenced in the provisions of the Corporate Income Tax Act. The regulations also apply accordingly to credits and bond issuances. If the transaction meets the criteria set out in the aforementioned Act, the tax authority refrains from determining the taxpayer’s income (or loss) concerning the interest rate. The provisions outline five conditions of varying complexity.
At the time of entering into the loan agreement, the interest rate must be determined based on the type of base interest rate, increased by a margin. To meet this condition, the borrower or lender must refer to the latest announcement issued by the Minister responsible for public finance. As of the publication of this article, the latest such act is the Announcement of the Minister of Finance from December 27, 2023 (M.P. 2023, item 1478).
For example, for loans in Polish zloty, the appropriate type of base interest rate is WIBOR 3M or WIRON 3M compounded rate, and for euros, it is EURIBOR 3M. As for the margin, it differs depending on the party to the transaction: for the borrower, the maximum margin is 3.1 percentage points, and for the lender, the minimum margin is 2.2 percentage points. According to the announcement, in the case of negative values of the base interest rate, the margin is increased by the absolute value of the base interest rate. In practice, this means that the interest rate on the loan is equal to the margin.
The only fees related to granting or servicing the loan may be interest payments. It is not allowed to increase the loan costs through non-interest charges, such as commissions or bonuses.
The loan period must not exceed 5 years. Although the Act refers to a single loan, the simplification may apply to all loans concluded with related parties, provided they do not exceed a five-year maturity period.
The highest amount of liabilities or receivables of a related entity from the capital of loans during the tax year may not exceed PLN 20,000,000. This amount is calculated separately for granted and borrowed loans. The amount of a loan expressed in foreign currency is converted into PLN using the average exchange rate from the last day before the loan payment date.
Thus, one entity may simultaneously:
Grant several loans, each for a period of up to 5 years, provided the total amount of receivables does not exceed (the equivalent of) PLN 20 million; and
Incur several loans, each for a period of up to 5 years, provided the total amount of liabilities does not exceed (the equivalent of) PLN 20 million.
The lender’s jurisdiction cannot be a country or territory listed as a tax haven, such as Hong Kong, the Principality of Andorra, or the Principality of Monaco.
If the above conditions are met, the tax authority refrains from verifying whether the interest rate applied is market-based. This solution provides the taxpayer with greater certainty regarding the proper fulfillment of statutory obligations with much less administrative effort. Reduced administrative burdens also contribute to greater efficiency in the functioning of the administrative authorities.
An additional advantage is the absence of the obligation to prepare local transfer pricing documentation. In such cases, only the TPR (transfer pricing) information must be prepared, which requires significantly fewer data for transactions covered by safe harbour.
However, it is important to emphasize that the types of base interest rates and the margin amounts specified in the announcement cannot serve as a benchmark for transfer pricing analysis. In the case of transactions that do not meet the described conditions, it is not permissible to directly rely on the announcement to justify the market nature of the interest rate.
If you need support in assessing whether a financial transaction meets the conditions to benefit from the safe harbour mechanism, please do not hesitate to contact us.
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