For over ten years the Polish corporate tax law requires preparing and updating the transfer pricing documentation [TPD] for transactions not only between the related companies but also between the foreign enterprises and their permanent establishments (branch offices) in Poland. The legal requirements are based on OECD Guidelines for Multinational Enterprises and Tax Administrations.
The compulsory parts of this documentation are:
1) description of functions to be performed by entities engaged in the transaction (taking into account the assets used and the risks taken);
2) description of all anticipated costs of the transaction, as well as the payment terms;
3) method of calculating profits and pricing of the object of the transaction (the Comparable Uncontrolled Price (CUP) method is generally deemed to be the most appropriate);
4) description of business strategy and other actions thereunder - in case the value of the transaction was affected by the strategy adopted by the entity;
5) indication of other factors influencing the value of transaction;
6) description of performance related benefits expected by the entity obliged to make out the documentation - in case of agreement concerning intangible transactions.
If a tax payer fails to present the TPD within 7 days from request he may face a risk of 50% penal income tax rate (versus 19% standard rate) to be applied to any extra income assessed during the tax inspection. On the other hand the transfer pricing documentation, when available, offers substantial support to taxpayers during the tax inspection. Any change of profitability of a business other than revenue related may raise interest of tax authorities. Therefore a special prudence should be applied when the change of pricing principles takes place.
