Poland: Enhanced tax audit focus on transfer pricing

Poland: Enhanced tax audit focus on transfer pricing

An announcement posted in late February 2016 on the Finance Ministry’s website states that transfer prices that are inconsistent with the arm’s length principle are resulting in underreported taxable income and that certain measures—already launched—will be intensified in the second quarter of 2016 to address this issue.

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Background

“In-depth” audits of transactions between related parties were first announced in December 2015. Then, in early February 2016, it was announced that personnel conducting tax audits will pay special attention to taxpayers who paid no corporate income tax in previous years.

Identifying arrangements, methods

The Ministry of Finance has identified a set of methods indicating that taxpayer contractual arrangements within capital groups result in either no profits or profits that are less than those that would be expected if the transactions were not between related parties. These taxpayer methods include:

  • Artificially increasing the book value of shares held in a limited liability company in the chain of related entities
  • Concluding “one-off” substantial agreements with majority shareholders, resulting in a tax loss for the controlled entity
  • Appraising royalties not in line with the arm’s length principle
  • Applying an incorrect allocation key to apportion costs / projects to a domestic entity
  • Granting loans or warranties between related entities on more favorable terms than those available on the market

KPMG observation

In responding to the tax authorities’ heightened scrutiny in the area of transfer pricing, taxpayers need to consider reviewing their existing transfer pricing policy and transfer pricing documentation, preparing or updating benchmarking studies, and confirming consistency with the arm’s length principle and verifying the appropriateness of transactions with regard to income tax and value added tax (VAT) rules.

 

Read a March 2016 report [PDF 433 KB] prepared by the KPMG member firm in Poland: Ministry of Finance looks closely at transfer pricing

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