vecteezy_aerial-view-of-palace-of-culture-and-science-and-downtown_16724124.jpeg

Poland

Extensive Summary of Poland’s Transfer Pricing Requirements

1. Introduction

This summary provides an in depth overview of Poland’s transfer pricing framework. It covers the legal and regulatory background, key laws, scope of application, documentation and methodological requirements, compliance measures, high risk industries and transactions, and anticipated future developments in this area.

2. Legal and Regulatory Framework

2.1 Core Legislation and Regulations

Poland has established comprehensive transfer pricing regulations to ensure that multinational enterprises (MNEs) operating within its jurisdiction comply with the arm's length principle and avoid tax avoidance through improper pricing of intercompany transactions. Below is a summary of the key transfer pricing legislation in Poland:

Corporate Income Tax Act (CIT): The Corporate Income Tax Act (CIT) is the primary piece of legislation in Poland regulating transfer pricing. It stipulates that transactions between related parties must comply with the arm's length principle, meaning the prices for intercompany transactions should reflect those that would be agreed upon by unrelated parties under similar circumstances.
Personal Income Tax Act (PIT): The Personal Income Tax Act (PIT) also includes provisions for transfer pricing in the context of individual taxpayers who may be involved in intercompany transactions within the scope of related party arrangements.
Ordinance of the Minister of Finance (2019): This ordinance provides further clarification on the documentation requirements for transfer pricing, detailing the structure and content of the transfer pricing documentation (including master file, local file, and country-by-country reporting). This ordinance is critical for understanding the technical requirements and documentation standards that companies must adhere to in order to comply with Polish tax regulations.
Transfer Pricing Documentation Regulations:
- Master File: Required for multinational enterprises to provide a comprehensive overview of their global operations, organizational structure, and the transfer pricing policies applied within the group.
- Local File: Requires detailed information on transactions conducted by the Polish entity, including a description of the related parties involved, the nature of the intercompany transactions, and financial data.
- Country-by-Country Report: This report is required for large multinational entities (with consolidated revenue exceeding EUR 750 million) and must disclose information on the global allocation of income, taxes, and economic activity of the group.
Minister of Finance’s Announcement on Transfer Pricing (2020): This announcement clarifies certain aspects of transfer pricing documentation, outlining the specific thresholds above which documentation must be prepared, and providing further guidance on issues such as comparability analysis, the use of transfer pricing methods, and the arm's length range for pricing intercompany transactions.
General Tax Law (2019): The General Tax Law in Poland includes provisions related to penalties for failure to comply with transfer pricing rules. The law covers the obligations of taxpayers to maintain proper transfer pricing documentation and outlines the potential penalties for non-compliance, such as financial fines and adjustments to taxable income.
Advance Pricing Agreement (APA) Regulations: The APA regulations, outlined by the Polish tax authorities, provide a mechanism for taxpayers to obtain binding agreements regarding the pricing of intercompany transactions for a specified period. The APA is a tool used by businesses to achieve certainty in their transfer pricing practices and avoid disputes with tax authorities.
Polish Tax Ordinance: This legislation provides the framework for tax administration, including procedures for submitting transfer pricing documentation, the timing for filing, and the process for tax audits related to transfer pricing issues. It stipulates that taxpayers must submit documentation within 7 days of a request by the tax authorities.
Transfer Pricing Guidance (2020): In addition to the legislation, the Polish Ministry of Finance has also issued detailed guidance notes for tax authorities and businesses. These notes provide practical instructions on how to apply transfer pricing rules, especially in terms of how to apply the arm's length principle, how to select the most appropriate transfer pricing methods, and how to conduct comparability analysis.

2.2 Alignment with International Standards

Poland's transfer pricing law is designed to align with international standards, particularly the guidelines established by the Organisation for Economic Co-operation and Development (OECD). Here’s how Poland’s transfer pricing law aligns with these global norms:

Adherence to the Arm’s Length Principle: Poland follows the arm’s length principle as its primary standard for determining transfer prices between related entities. This principle, which is at the core of the OECD Transfer Pricing Guidelines, ensures that transactions between related parties are priced as though they were conducted between unrelated parties, under similar conditions. This is a cornerstone of international transfer pricing regulations, and Poland’s legislation directly reflects this approach.
OECD Transfer Pricing Guidelines: Poland’s transfer pricing laws incorporate and implement the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. These guidelines serve as the international reference point for transfer pricing policies, and Poland aligns with these standards in terms of:
Transfer Pricing Methods: Poland recognizes and applies the methods outlined by the OECD, such as the Comparable Uncontrolled Price (CUP) method, Cost Plus Method, Resale Price Method, and the Transactional Net Margin Method (TNMM).
Documentation Requirements: Poland requires businesses to prepare and maintain transfer pricing documentation in a manner consistent with the OECD’s recommendations, which include the Master File, Local File, and Country-by-Country Report (CbCR) for large multinationals. This ensures that Poland complies with the OECD's Base Erosion and Profit Shifting (BEPS) Action Plan on documentation.
Alignment with the BEPS Action Plan: Poland has made efforts to align its transfer pricing regulations with the OECD’s BEPS (Base Erosion and Profit Shifting) recommendations, specifically in relation to:
Country-by-Country Reporting (CbCR): Poland mandates that large multinational enterprises (MNEs) submit a Country-by-Country Report if their consolidated revenue exceeds EUR 750 million, in line with OECD standards for transparency and combating profit shifting.
Local File and Master File: The requirements for maintaining the Master File and Local File are aligned with the OECD’s transfer pricing documentation standards, helping ensure that businesses provide detailed information about their operations, transfer pricing policies, and intercompany transactions.
Advance Pricing Agreements (APA): Poland’s APA system is consistent with the OECD guidelines. These agreements allow businesses to enter into binding arrangements with tax authorities on the transfer pricing methods to be used for future transactions. This process helps ensure tax certainty and avoid potential disputes, aligning with OECD recommendations for resolving transfer pricing conflicts.
Avoidance of Double Taxation: Poland’s transfer pricing law includes provisions to avoid double taxation, in line with the OECD’s Model Tax Convention. If tax authorities adjust the transfer prices of cross-border transactions, Poland’s tax regulations allow for mutual agreement procedures (MAPs) under bilateral tax treaties to resolve disputes and prevent double taxation.
Documentation and Reporting: The detailed documentation requirements in Polish law, including the master file, local file, and country-by-country report, align with the OECD's guidelines for tax reporting and transparency. These reports ensure that Poland’s transfer pricing regime maintains the global standards for information sharing and transparency among tax authorities.
Compliance with the OECD’s Transfer Pricing Risk Assessment: Poland’s tax authorities apply the OECD’s transfer pricing risk assessment framework when auditing businesses. This includes evaluating the risk of transfer pricing manipulation by analyzing the alignment of intercompany transactions with the arm’s length standard and examining the quality of the company’s transfer pricing documentation.

Poland's transfer pricing legislation also aligns with European Union (EU) rules and regulations. Here’s how Polish transfer pricing law incorporates and complies with EU standards:

EU Anti-Tax Avoidance Directive (ATAD): The EU Anti-Tax Avoidance Directive (ATAD), which was adopted in 2016, sets out measures to combat tax avoidance and ensure a fairer tax system across the EU. Poland, as an EU member state, has implemented these provisions, which affect transfer pricing in several key areas:
- Controlled Foreign Company (CFC) Rules: The ATAD requires EU countries to introduce CFC rules that prevent base erosion through the use of low-tax jurisdictions. Poland’s transfer pricing laws incorporate these rules to ensure that income from foreign subsidiaries is taxed in Poland if it is artificially shifted to low or no-tax jurisdictions.
- Interest Deductibility: The ATAD limits the deductibility of interest expenses for tax purposes to prevent excessive debt shifting. This is relevant to transfer pricing because the interest rates charged in intercompany loans must adhere to the arm’s length principle. Poland's tax law follows these rules to ensure that interest payments between related entities are not artificially inflated to reduce the tax base.
- Exit Taxation: The ATAD mandates EU member states to introduce exit taxation, which ensures that businesses that relocate their tax residency outside the EU still pay taxes on their assets before they leave. Poland adheres to this rule in its transfer pricing framework.
EU Transfer Pricing Guidelines: In addition to the OECD guidelines, Poland follows EU regulations concerning transfer pricing, particularly those relating to cross-border intra-group transactions. These rules are intended to ensure consistency across EU member states when it comes to the implementation of the arm's length principle.

While the EU does not have its own standalone set of transfer pricing rules, it emphasizes the application of the OECD guidelines in cross-border transactions. The EU encourages member states to ensure consistent application of the arm's length principle, and Poland's transfer pricing regulations align with these expectations.
EU Mutual Agreement Procedure (MAP): The Mutual Agreement Procedure (MAP) is an EU mechanism for resolving transfer pricing disputes between countries, ensuring that taxpayers are not subjected to double taxation. Poland, as an EU member state, follows the EU's MAP rules, which are based on OECD guidelines for resolving disputes over the allocation of profits in cross-border transactions. The MAP process allows taxpayers to request a resolution when a transfer pricing adjustment by one tax authority leads to double taxation.
EU Code of Conduct on Transfer Pricing Documentation: The EU Code of Conduct on Transfer Pricing Documentation is a non-binding instrument that encourages EU member states to align their transfer pricing documentation practices. Poland complies with this code by requiring multinational enterprises to submit appropriate transfer pricing documentation, which includes a Master File and a Local File, consistent with the OECD and EU standards.
Country-by-Country Reporting (CbCR) Requirements: In line with both the OECD BEPS Action 13 and EU regulations, Poland enforces Country-by-Country Reporting (CbCR) for large multinational groups (with consolidated annual revenue of EUR 750 million or more). This requirement is part of the EU's commitment to enhancing tax transparency and ensuring that multinational enterprises report their activities in a manner that aligns with EU and OECD standards.
EU Tax Avoidance Measures: Poland adheres to the EU's common tax avoidance measures, which include provisions to prevent aggressive tax planning, including rules around transfer pricing. These measures are designed to make sure that multinational companies do not shift profits artificially to jurisdictions with lower taxes, and they align with both OECD BEPS standards and EU directives.

3. Scope and Application of Transfer Pricing Rules

3.1 Definition of Related Parties

Under the transfer pricing laws in Poland, the definition of related parties aligns with the OECD guidelines, and it refers to entities that have certain relationships that enable them to influence the terms and conditions of intercompany transactions. According to the Polish Corporate Income Tax Act (CIT) and related tax regulations, related parties include:

Direct or Indirect Control: Related parties are those entities that are subject to direct or indirect control by another entity or can exert significant influence over one another. This control or influence can be established through ownership of shares, voting rights, or other means that enable a party to determine the financial and operating policies of another entity.
Ownership Threshold: A party is considered related to another entity if it owns, directly or indirectly, at least 5% of the shares or voting rights in the other entity, or if the other entity owns at least 5% of the shares or voting rights in the first entity. This threshold can also apply to situations where both entities are controlled by a third party (e.g., a parent company).
Family Relationships: Related parties also include individuals and entities that are controlled or significantly influenced by family members. For example, if an individual or a group of individuals (such as a family) holds a controlling interest in two companies, these companies are considered related.
Control by a Common Entity: Entities that are controlled by the same third-party entity (i.e., a parent or holding company) are also considered related parties. This applies to both domestic and international groups of companies.
Associations and Partnerships: Related parties may also include associations or partnerships where one partner has significant influence or control over another, typically due to shared ownership interests or voting rights.

3.2 Types of Transactions Covered

Poland's transfer pricing law provides specific details on the types of transactions that are covered under the transfer pricing regulations. The Polish Corporate Income Tax Act (CIT) and related tax regulations apply transfer pricing rules to a wide range of intercompany transactions between related parties. Here are the key types of transactions that are explicitly covered:

Sale and Purchase of Goods: Transfer pricing rules apply to the pricing of goods exchanged between related entities, whether it involves tangible products or raw materials. This includes all intercompany sales and purchases, where prices must be determined based on the arm's length principle.
Provision of Services: Any services provided between related parties, including management, administrative, consulting, legal, or technical services, are covered. The transfer price for services must be consistent with what would be charged between independent parties in a similar transaction.
Intangible Assets: Transactions involving the transfer or licensing of intangible assets (such as intellectual property, patents, trademarks, brand names, or proprietary technology) are subject to transfer pricing rules. These transactions need to comply with the arm’s length principle in terms of both the pricing of the intangible asset and the allocation of profits derived from its use.
Financial Transactions: Loans, guarantees, and other financial instruments between related parties also fall under transfer pricing rules. This includes intercompany financing arrangements, where the terms (such as interest rates, repayment schedules, and collateral) must reflect market conditions. Transfer pricing regulations ensure that interest rates on intercompany loans are consistent with those charged by independent parties in similar circumstances.
Cost Sharing Arrangements: In cases where related parties agree to share certain costs (such as research and development costs or other operating expenses), the allocation of these costs must follow the arm’s length principle. The pricing must be based on an appropriate cost-sharing arrangement that reflects the benefits each party derives from the transaction.
Royalty Payments: Royalties paid for the use of intellectual property (such as trademarks, patents, and other proprietary technology) are subject to transfer pricing rules. The royalty rate must reflect the arm's length price, meaning that it must be similar to what independent entities would agree upon in a comparable transaction.
Real Estate Transactions: Transfer pricing regulations also apply to transactions involving real estate between related parties, including sales, leases, or rentals. The terms and pricing for such transactions must be in line with market conditions for comparable transactions between unrelated parties.
Allocation of Profits and Losses: The allocation of profits and losses between related parties (for instance, in the case of joint ventures or partnerships) is covered by the transfer pricing laws. The allocation must reflect an arm's length division based on the functions performed, risks assumed, and assets used by each party in the arrangement.
Dividends: Dividend payments between related entities are subject to transfer pricing rules to ensure that such payments are made in accordance with market conditions. While this is often less directly scrutinized than other intercompany transactions, the allocation of profits between parent and subsidiary entities must reflect the arm's length principle.

3.3 Exemptions and Simplifications

Under the Polish transfer pricing legislation, there are certain exemptions from the documentation and reporting requirements for transfer pricing, which are primarily designed to reduce the administrative burden on smaller businesses. These exemptions are specified in the Corporate Income Tax Act (CIT) and related regulations. The main exemptions are as follows:

Threshold Exemption for Small and Medium Enterprises (SMEs):
- Exemption Based on Transaction Size: Transfer pricing documentation requirements do not apply to intercompany transactions where the aggregate value of transactions between related parties does not exceed certain thresholds. Specifically, businesses with lower transaction amounts are exempt from preparing detailed transfer pricing documentation.
  
  These thresholds are:
  - PLN 2 million (approximately EUR 430,000) for transactions involving goods and services.
  - PLN 10 million (approximately EUR 2.15 million) for transactions involving financial transactions, intangible assets, or real estate transactions.
If the total value of transactions between related parties in a tax year does not exceed these thresholds, then the taxpayer does not need to prepare transfer pricing documentation. This exemption applies to small businesses or those with low intercompany transactions.
Exemption for Certain Types of Entities:
- Entities Engaged in Certain Activities: Certain entities, especially those involved in specific regulated industries or in certain free zones, may be exempt from detailed transfer pricing requirements if their activities are considered low-risk or are governed by separate tax regimes.
- Taxpayers under the Estonian CIT system: Taxpayers using the Estonian corporate tax model, which defers taxation on profits until they are distributed, may not be required to comply with transfer pricing documentation rules for certain intercompany transactions if their operations meet the necessary criteria under the Estonian CIT regime.
Exemption for Domestic Transactions:
- Transactions Between Polish Entities: Polish tax law typically does not require transfer pricing documentation for transactions between Polish entities (i.e., domestic transactions between related parties in Poland). The transfer pricing regulations primarily apply to cross-border transactions involving related parties in different jurisdictions. However, if the domestic transactions significantly affect the taxable base and are not conducted at arm's length, these can still be subject to review by tax authorities.
Exemption for Low-Risk Intercompany Transactions:
- Simplified Transfer Pricing Methods: For certain low-risk transactions, such as those involving standardized goods or services, the tax authorities may allow simplified documentation or less extensive transfer pricing analysis. In these cases, businesses may not need to perform extensive comparability analyses or provide detailed documentation if the transactions are straightforward and involve minimal risk.
Exemption for Transactions Below Certain Profit Margins:
- Transactions with Low Profit Margins: The transfer pricing rules focus primarily on ensuring that profits are allocated appropriately based on the economic activities conducted by the parties involved. For transactions with very low profit margins (such as standard, low-margin trading transactions), some businesses may be eligible for simplified reporting, particularly if they do not involve significant risk-taking or value-added activities.
Exemption for Certain Related Party Relationships:
- Non-Controlled Relationships: The transfer pricing documentation requirements generally apply to transactions between related parties, i.e., entities that are controlled or significantly influenced by each other. If entities are not deemed to be related (based on ownership thresholds or control), the transfer pricing rules may not apply. For instance, transactions between entities where neither party has significant influence or control over the other may be exempt.
Exceptions for Certain Taxpayers Using Tax Consolidation:
- Tax Consolidation Regimes: Under certain conditions, groups of companies that use tax consolidation may benefit from exemptions or simplified rules for transfer pricing documentation. In this case, the intercompany transactions within the group may be treated differently for tax purposes, potentially alleviating the need for detailed transfer pricing documentation.

4. The Arm’s Length Principle

The arm’s length principle is the cornerstone of Poland’s transfer pricing rules. It mandates that transactions between related parties must be priced as if the parties were independent, ensuring that the taxable income reflects the true economic substance of the transactions.

4.1 Determination of Arm’s Length Price

Taxpayers in Poland must use reliable and internationally accepted methods to determine the arm’s length price. Common methods include:

Comparable Uncontrolled Price (CUP) Method: Compares the price in a controlled transaction with that of a comparable uncontrolled transaction.
Cost Plus Method: Adds an appropriate profit margin to the cost base incurred by the supplying entity.
Transactional Net Margin Method (TNMM): Compares the net profit margins from controlled transactions with those from similar independent companies.
Resale Price Method: Establishes the arm’s length price based on the margin earned by a reseller in an uncontrolled transaction.
Profit Split Method: Allocates the combined profits from intercompany transactions based on the relative economic contributions of each entity.

4.2 Comparability and Functional Analysis

To justify the chosen method, a robust comparability analysis is essential:

Functional Analysis: Involves a detailed review of the functions performed, risks assumed, and assets employed by each party.
Economic Analysis: Considers market conditions, competitive dynamics, and industryspecific factors that might influence pricing.
Contractual Analysis: Reviews the formal agreements between related parties, including pricing terms, payment conditions, and performance clauses.

5. Documentation and Disclosure Requirements

Robust documentation is a fundamental requirement under Poland’s transfer pricing rules. Taxpayers must maintain detailed records to substantiate that their intercompany transactions adhere to the arm’s length principle.

5.1 Key Documentation Elements

Under Polish transfer pricing law, businesses are required to prepare and maintain specific transfer pricing documentation for intercompany transactions involving related parties. This documentation must align with the requirements set forth in the Corporate Income Tax Act (CIT), the Tax Ordinance, and the Minister of Finance's regulations. The main types of transfer pricing documentation that need to be completed under Polish law are as follows:

Master File: The Master File provides a global overview of the multinational enterprise's (MNE's) structure, business activities, and transfer pricing policies. It contains high-level information about the group’s operations and its transfer pricing practices, and it is intended to help tax authorities understand the broader context in which the local entities operate. The key elements typically included in the Master File are:
- Organizational structure of the MNE.
- Description of the business activities of the group.
- Financial statements of the MNE.
- Information on intangibles, financial arrangements, and intercompany financial activities.
- Transfer pricing policies used by the group.
The Master File must be kept for all multinational enterprises, and it must be submitted to the tax authorities upon request.
Local File: The Local File provides detailed information on intercompany transactions carried out by the Polish entity with related parties. This file contains information specific to the local entity’s operations, including its transfer pricing practices. The key elements of the Local File include:
- A description of the local entity’s business and the intercompany transactions it has entered into.
- A list of related parties with whom the local entity transacts.
- A detailed analysis of the pricing of intercompany transactions (e.g., sales of goods, services, royalties, etc.), including the transfer pricing methods used and the results of any comparability analysis.
- Financial data to support the transfer pricing policies (such as profit and loss statements).
- Copies of relevant agreements or contracts for the intercompany transactions.
The Local File must be prepared by entities involved in cross-border transactions with related parties and must be made available to tax authorities upon request.
Country-by-Country Report (CbCR): The Country-by-Country Report is required for large multinational groups with consolidated annual revenues exceeding EUR 750 million. This report provides a detailed overview of the group’s global allocation of income, taxes paid, and other financial data. The key information included in the CbCR is:
- Revenues, profit (or loss) before tax, and tax paid in each jurisdiction where the MNE operates.
- The number of employees and capital in each jurisdiction.
- The amount of income tax accrued and the effective tax rate for each jurisdiction.
The CbCR is intended to provide tax authorities with a high-level overview of the group's activities and ensure that profits are allocated appropriately across jurisdictions.
Transfer Pricing Documentation Report (also known as the Tax Compliance Report): This documentation is a summary report that includes the general transfer pricing information for the business year. It must be filed with the annual tax return and submitted to the tax authorities, especially if requested. It contains information related to:
- The method of transfer pricing applied by the company (e.g., comparable uncontrolled price, cost-plus, resale price).
- A summary of the intercompany transactions that took place during the year.
- Information on the main risks, assets, and functions involved in the transactions.
- An overview of how the company determined the arm's length price for its transactions.
This report must be submitted by entities engaged in cross-border transactions and is considered a tax compliance obligation for businesses.

5.2 Timing and Accessibility

Under Polish transfer pricing law, there are specific deadlines for submitting the various types of transfer pricing documentation. These deadlines are established by the Corporate Income Tax Act (CIT) and related tax regulations. Below are the deadlines for the different documentation types:

Master File:
- The Master File must be prepared and made available to the tax authorities upon request. There is no specific deadline for submission, but it must be maintained and ready for submission within 7 days if the tax authorities request it. It is not submitted proactively but must be provided when requested during a tax audit or review.
Local File:
- The Local File must be prepared and available for submission to the tax authorities upon request. Similar to the Master File, it does not have a fixed deadline for submission but must be ready for inspection during tax audits. However, the documentation should be available by the date of filing the annual tax return, as tax authorities may request it as part of the audit process.
Country-by-Country Report (CbCR):
- The Country-by-Country Report must be submitted by the end of the reporting fiscal year following the year in which the financial data is reported. For example, for fiscal year 2024, the CbCR would need to be submitted by December 31, 2025.
- The CbCR must be submitted electronically to the Polish tax authorities (via the Ministry of Finance’s e-portal), and it must be filed by the ultimate parent company or a designated entity within the MNE group.
Transfer Pricing Documentation Report (Tax Compliance Report):
- The Transfer Pricing Documentation Report is submitted along with the annual tax return for the year. For example, for the tax year 2024, this report must be submitted with the corporate income tax return (CIT-8) by March 31, 2025 (for companies with a calendar year fiscal year). This report must be filed annually and is part of the tax return submission process.
- If the business files an extension for the tax return, the deadline for the Transfer Pricing Documentation Report would be extended accordingly.

5.3 Penalties for Non-Compliance

Under Polish transfer pricing law, businesses that fail to comply with the transfer pricing documentation requirements can face significant penalties. These penalties are designed to ensure that companies adhere to the arm's length principle and provide the necessary documentation to support the pricing of intercompany transactions. The penalties for non-compliance are outlined in the Corporate Income Tax Act (CIT), the Tax Ordinance, and other related regulations.

Failure to Submit Transfer Pricing Documentation:
- If a taxpayer fails to submit the required transfer pricing documentation (such as the Master File, Local File, Country-by-Country Report (CbCR), or Transfer Pricing Documentation Report), the tax authorities may impose a fine. The fine can range from a fixed monetary amount to a percentage of the unpaid tax due.
- The penalty for not submitting the documentation upon request can be as high as PLN 10,000 (approximately EUR 2,150) per year of non-compliance. However, this penalty can increase if the failure to submit is deemed to be intentional or part of a larger pattern of non-compliance.
Failure to Maintain Proper Documentation:
- If the transfer pricing documentation is not sufficiently detailed, or if it does not meet the legal requirements set forth in the Polish tax law (e.g., incomplete or inaccurate documentation), the tax authorities can impose penalties. In this case, the penalty could be as high as PLN 50,000 (approximately EUR 10,750), depending on the severity of the violation.
Incorrect or Incomplete Transfer Pricing Documentation:
- If the submitted transfer pricing documentation is deemed incorrect or incomplete (for example, if it does not sufficiently support the arm's length principle or lacks necessary comparability analysis), tax authorities may impose fines. The fine can reach up to PLN 100,000 (approximately EUR 21,500) if the documentation is significantly deficient or misleading.
Transfer Pricing Adjustments and Additional Tax Liability:
- If the tax authorities determine that the pricing of intercompany transactions does not adhere to the arm's length principle, they may adjust the taxable income of the business. This adjustment can lead to additional tax liability for the company, along with penalties and interest on the underpaid tax.
- The penalties for underreporting income due to improper transfer pricing practices can range from 10% to 20% of the adjusted tax amount, depending on the seriousness of the violation.
Late Submission or Non-Compliance with the Country-by-Country Reporting (CbCR) Requirement:
- For multinational groups required to submit the Country-by-Country Report (CbCR), failure to file or late submission can result in financial penalties. The exact amount of the penalty varies but could be substantial, especially for large multinational enterprises. Non-compliance with CbCR rules could result in penalties up to PLN 20,000 (approximately EUR 4,300) for a first-time violation.
Interest on Unpaid Taxes:
- In cases where transfer pricing adjustments lead to underpayment of taxes, the tax authorities will also charge interest on the overdue tax. The interest rate is typically based on the prevailing Polish tax interest rates, which can be quite high, further increasing the financial burden on the taxpayer.
Criminal Penalties:
- In cases of fraudulent behavior or intentional evasion of transfer pricing rules, the tax authorities may pursue criminal sanctions. This can involve criminal liability for directors or individuals responsible for the non-compliance, in addition to financial penalties.

6. Transfer Pricing Adjustments

Under Polish transfer pricing law, transfer pricing adjustments can be made by the tax authorities if they determine that the intercompany transactions between related parties are not conducted in accordance with the arm's length principle. This means that if the tax authorities believe that the prices for intercompany transactions are not consistent with market conditions, they have the authority to adjust the taxable income of the entities involved.

Here are the key types of transfer pricing adjustments available under Polish law:

Adjustment of Taxable Income:
- General Adjustment: If the Polish tax authorities determine that the transfer prices used for intercompany transactions are not at arm’s length, they can make adjustments to the taxable income of the Polish entity. This adjustment typically increases the taxable income by disallowing the non-arm's length portion of the intercompany transaction.
- Example: If a related party sells goods to a Polish subsidiary at a price lower than the arm's length price, the tax authorities can adjust the subsidiary's taxable income by increasing it to reflect the arm's length price for the goods sold.
Adjustments for Cross-Border Transactions:
- Cross-Border Adjustments: If the intercompany transactions involve cross-border transactions (e.g., transactions between a Polish entity and a related entity in another country), Polish tax authorities may make an adjustment to the Polish taxpayer’s income to reflect what it considers the appropriate arm's length price.
- Double Taxation and Relief: If the tax authorities in the other country make a corresponding adjustment, this could result in double taxation. However, Poland provides a mechanism for businesses to seek relief from double taxation under tax treaties or through the mutual agreement procedure (MAP).
Adjustments for Underreported or Overstated Profits:
- Underreported Profits: If the transfer prices are found to be set in such a way that the Polish entity reports lower profits than it should (e.g., by purchasing goods at inflated prices from a related party), the tax authorities may adjust the income upward to reflect the true economic reality.
- Overstated Profits: Similarly, if the Polish entity is found to have overstated profits (e.g., by selling goods to a related party at excessively high prices), the tax authorities can adjust the income downward to ensure that the entity is not paying more taxes than it should.
Adjustments Related to Cost-Sharing Agreements:
- Cost-Sharing Agreements (CSA): When related parties enter into a cost-sharing agreement (CSA), the allocation of shared costs between entities must reflect the arm's length principle. If the Polish tax authorities find that the allocation of costs under a CSA does not align with what unrelated parties would agree to, they can adjust the distribution of costs and related income to reflect the arm's length standard.
- Example: If one entity in the group is allocated a disproportionately high share of costs in a CSA, the tax authorities can adjust the allocation to ensure that the cost-sharing arrangement is equitable and arm's length.
Advanced Pricing Agreements (APA) and Corresponding Adjustments:
- Advanced Pricing Agreements (APA): Polish businesses can seek an APA with the tax authorities to obtain certainty about the transfer pricing methods they will apply for future intercompany transactions. If the APA is granted, it provides a safe harbor for the company by establishing agreed-upon transfer pricing methods and tax treatment.
- Corresponding Adjustments: If the tax authorities in Poland or in another jurisdiction make an adjustment to the transfer price based on the APA, corresponding adjustments can be made to offset any resulting over- or under-taxation. These adjustments are intended to avoid double taxation and align the group’s overall tax liabilities.
Adjustments for Indirect Transfers or Royalties:
- Indirect Transfers: If intangible assets (such as patents or trademarks) are transferred between related entities and the Polish tax authorities believe the price was set above or below the arm’s length price, they can adjust the price accordingly. This ensures that the transfer of intellectual property is taxed fairly.
- Royalties: Similar to intangible asset transfers, royalty payments between related parties must be made in line with the arm's length principle. If the tax authorities find that the royalty rate is not consistent with market conditions, they can adjust the amount to reflect the arm's length rate.
Application of the Mutual Agreement Procedure (MAP):
- Mutual Agreement Procedure (MAP): If transfer pricing adjustments result in double taxation (e.g., when both Polish and foreign tax authorities make adjustments to the same transactions), businesses can seek relief through the Mutual Agreement Procedure (MAP), which is available under Poland’s tax treaties.
- MAP Adjustments: This procedure allows the involved tax authorities to negotiate an agreement to resolve double taxation and make corresponding adjustments to the taxpayer’s income to eliminate the double taxation issue.
Adjustment for Unreported Transactions:
- If related-party transactions are underreported or not reported (for instance, if the taxpayer fails to disclose certain intercompany transactions), the tax authorities may make adjustments by including the unreported transactions in the taxable income and adjusting for the correct transfer price.
Consequences of Adjustments:
- Additional Tax Liability: When adjustments are made, the taxpayer will face additional tax liability based on the adjusted amount. This includes paying additional income tax on the increased taxable income resulting from the transfer pricing adjustment.
- Penalties and Interest: The tax authorities may impose penalties and interest on the additional tax liability if the adjustments reveal underreporting of income or deliberate underpayment of taxes. The penalties can range from 10% to 20% of the adjusted tax amount, depending on the severity of the non-compliance.

7. Advance Pricing Agreements (APAs) and Mutual Agreement Procedures (MAPs)

To provide greater certainty and help resolve disputes, Poland offers mechanisms similar to those found in other OECD jurisdictions:

7.1 Advance Pricing Agreements (APAs)

Filing the Request: The application for an APA must be submitted to the Polish tax authorities through the Ministry of Finance. The request must be filed in writing and should include the following information:
- Description of the taxpayer’s business: Including a detailed explanation of the intercompany transactions that are being addressed in the APA request.
- Proposed transfer pricing method(s): The taxpayer must propose the transfer pricing methods that they intend to apply to the intercompany transactions. The methods must be in line with the arm’s length principle.
- Relevant financial data: Financial information necessary to demonstrate the appropriateness of the proposed transfer pricing methods (e.g., financial statements, profitability benchmarks, etc.).
- Identifying the related parties: The application must provide details about the related parties involved in the transactions, including their structure and ownership relationships.
- Other relevant documents: Any other supporting documentation or agreements, such as contracts between the related parties, prior tax rulings, or financial arrangements, should be included in the application.

The request for an APA should be submitted at least 90 days before the start of the tax year in which the taxpayer intends the APA to apply.

7.2 Mutual Agreement Procedures (MAPs)

Filing the Request:
- The taxpayer must file a formal request for MAP with the Polish tax authorities (specifically, the Ministry of Finance or the National Revenue Administration).
- The request must be filed within a specific timeframe from the date the taxpayer becomes aware of the issue. Typically, the request must be submitted within 3 years from the date of the first notification of the tax assessment or transfer pricing adjustment that is causing double taxation.
Content of the Request: The application should include:
- A description of the dispute and the tax assessments or transfer pricing adjustments that have led to double taxation.
- The details of the related parties involved and the nature of the intercompany transactions.
- The taxpayer’s view of the proper tax treatment under the applicable tax treaty and the arm's length principle.
- Relevant documents supporting the taxpayer’s position, including transfer pricing documentation, financial records, and any correspondence with tax authorities.
- Information about any other jurisdictions involved in the dispute.

8. Industries and Transactions with Higher Transfer Pricing Risk

Certain industries and transaction types pose a higher risk due to their inherent complexity and the potential for profit shifting.

8.1 High Risk Industries

Manufacturing and Distribution:
- Nature of Transactions: Involves multistage production and distribution chains, where intercompany pricing for raw materials, components, and finished goods is critical.
- Risk Factors: Complex cost allocation and supply chain dynamics require detailed functional and comparability analyses.
Financial Services:
- Nature of Transactions: Includes intragroup financing, guarantees, and other financial instruments.
- Risk Factors: Accurate pricing is essential to capture market risk and credit risk, with mispricing potentially leading to significant adjustments.
Technology and Intellectual Property:
- Nature of Transactions: Licensing, royalty arrangements, and transfers of intangibles such as patents and software.
- Risk Factors: Valuation challenges and the rapid pace of innovation can make determining arm’s length pricing complex.
Pharmaceuticals and Life Sciences:
- Nature of Transactions: R&D, licensing of innovations, and distribution agreements.
- Risk Factors: High R&D investments and the allocation of returns on innovation require rigorous documentation and robust economic analysis.

8.2 High Risk Transaction Types

Intercompany Financing:
- Key Considerations: Setting appropriate interest rates, fees, and risk premiums for loans and guarantees between related parties.
- Risk Factors: Market volatility and credit risk mispricing can lead to substantial adjustments.
Intangible Asset Transfers and Licensing:
- Key Considerations: Accurate valuation of intellectual property and other intangibles.
- Risk Factors: A lack of directly comparable data and rapid technological change increase complexity.
Service Agreements and Cost Sharing:
- Key Considerations: Appropriate allocation of costs and benefits for shared services and centralized management functions.
- Risk Factors: Complex functional analysis is necessary to ensure that pricing is on an arm’s length basis.
Capital Asset Transactions:
- Key Considerations: Transfers of significant assets or equity interests require robust independent valuations.
- Risk Factors: Misvaluation may materially impact taxable income, capital gains, and depreciation claims.

9. Challenges and Emerging Trends

9.1 Digital Economy and New Business Models

Valuation of Digital Assets: Traditional valuation methods may need adjustment to accurately capture the value of digital assets and data driven business models.
Complex Global Supply Chains: Digitalization and globalization of supply chains add complexity in establishing comparability and allocating income appropriately.

9.2 Evolving International Standards and BEPS Initiatives

Integration of BEPS Measures: Poland continues to align its transfer pricing framework with OECD BEPS recommendations, affecting documentation, adjustment mechanisms, and disclosure requirements.
Enhanced Transparency: Global moves toward greater tax transparency have led to more detailed reporting obligations and improved information sharing among tax authorities.

10. Future Outlook and Recommendations

10.1 Continuous Monitoring and Proactive Management

Dedicated Transfer Pricing Teams: Establish specialized teams to monitor regulatory changes, market trends, and ensure internal compliance.
Regular Policy Updates: Continuously review and update transfer pricing policies to reflect current business operations and evolving regulatory requirements.
Investment in Technology: Leverage advanced data analytics and IT systems to improve benchmarking accuracy and streamline documentation processes.

10.2 Strengthening Engagement with Tax Authorities

Advance Pricing Agreements (APAs): Engage early with tax authorities to negotiate APAs and gain clarity on transfer pricing methodologies for complex transactions.
Utilize Mutual Agreement Procedures (MAPs): Where disputes arise, actively participate in MAP processes to resolve cross border issues and avoid double taxation.

10.3 Preparing for Heightened Regulatory Scrutiny

Enhanced Documentation: Ensure that all transfer pricing documentation is comprehensive, current, and aligned with both domestic and international standards.
Ongoing Training: Regularly update the expertise of personnel involved in transfer pricing to remain informed of evolving methodologies and regulatory expectations.