For most organisations, transactions with related parties are a natural part of day-to-day business – ranging from the division of functions within a group, through shareholder loans, to support services and the sharing of intangible assets. Unfortunately, for the tax authorities, this very area is a priority for audit.
The deadlines for preparing the local transfer pricing documentation (Local File) and submitting form TPR-C are fast approaching.
However, it is worth taking a broader view of this process: a thorough verification of the arm’s length nature of intra-group transactions is not merely a matter of fulfilling a burdensome reporting obligation. Above all, it serves as a protective shield for members of the management board.
Why are Local File and TPR-C high-stakes games?
Polish transfer pricing regulations have been exceptionally rigorous in recent years. The digitisation of reporting means that the National Tax Administration (KAS) receives ready-made, pre-selected analytical data directly onto its servers. The TPR-C form is not a simple summary – it is an advanced spreadsheet that instantly highlights deviations from market standards to tax analysts.
Errors, failure to meet deadlines or the preparation of documentation in a perfunctory manner carry real consequences:
- Personal liability of the management board: A declaration that a transaction is arm’s length is made under penalty of liability under the Fiscal Penal Code (KKS).
- Income reassessment and penalty tax rate: If the tax authorities challenge the terms of the transaction, this entails the obligation to pay the outstanding tax together with interest and an additional tax liability (ranging from 10% to as much as 30% of the amount of the benefit).
- Automatic selection for audit: Inconsistencies in the TPR-C are the surest way to end up on the list of entities selected for a detailed customs and tax audit.
Checklist: How should the management and finance department prepare for the close of the reporting period?
To navigate the transfer pricing procedure efficiently and safely, it is advisable to follow these steps:
1. Verification of documentation thresholds
Ensure you identify which transactions within the group exceeded the statutory thresholds in the financial year under review (e.g. PLN 10 million for goods and financial transactions, PLN 2 million for services and other transactions).
2. Ensuring benchmark analyses are up to date
Simply describing the transactions in the Local File is not enough. It is essential to have an up-to-date market price analysis (benchmark) which demonstrates that independent parties would have agreed on terms at a comparable level.
3. Verification of ‘business substance’
The tax authorities are increasingly asking not only about the price, but also about the likelihood of the service being performed. Does the company have evidence of support services being provided (reports, emails, minutes) for which it pays a related party?
4. Consistency of data in the TPR-C with the financial statements and CIT
The financial data reported in the TPR-C return must correspond exactly with the financial statements and the income and expenses declared for CIT purposes.
Protect your organisation with Vinci & Vinci
Preparing sound transfer pricing documentation requires a combination of tax, financial and legal expertise. Rather than rushing to meet deadlines at the last minute, it is worth carrying out an audit and mapping your transactions in advance.
How can we help your business?
- We will prepare a complete set of Local File / Master File documentation tailored to the specific nature of your business.
- We will prepare reliable comparative analyses (benchmarking) based on up-to-date databases accepted by the tax authorities.
- We will complete and verify the TPR-C form, eliminating the risk of errors and inconsistencies.
- We will assess the personal risk of board members and implement internal procedures (Internal TP Policy).
Don’t leave your financial security until the last minute
Do you have any questions about the transaction threshold or the verification of existing agreements with related parties?