Anti-tax haven regulations

On the 1^st of January 2021 became effective regulations of the Act of 28^th of November 2020 (Dz. U. z 2020 r. poz. 2123) which changed the legal rules with regard to preparing the transfer pricing documentation. They introduced so called “anti-tax haven regulations”.

As a reminder: The duty to prepare a local transfer pricing documentation applies in principle to controlled transactions of a homogeneous nature whose value (after applicable reductions) exceeds in a tax year the following documentation thresholds (art. 11k sec. 2 of the Act of 15^th February 1992 on the Corporate Income Tax, Dz. U. z 2020 r., poz. 1406, hereinafter as: CIT Act and art. 23w sec. 2 of the 26^th of July 1991 on the Personal Income Tax, Dz. U. z 2020 r. poz. 1426, hereinafter as: PIT Act):

1. 10 000 000 PLN – in the case of a commodity transaction;
2. 10 000 000 PLN – in the case of a financial transaction;
3. 2 000 000 PLN – in the case of a service transaction;
4. 2 000 000 PLN – in the case of any other transaction than mentioned in 1-3.

Documentation of transactions with entities from tax havens

At the beginning of the current year special documentation thresholds were introduced for transactions with the entities from so called “tax havens” (a territory or a state which uses harmful tax competition) and pursuant to that the taxpayers are obliged to prepare transfer pricing documentation with the significantly lower thresholds as above mentioned. The tightening of the documentation thresholds has in view keeping of the due diligence in the scope of correctness’ verification connected with the settlements of accounts of the other transaction party with a subject located in a tax haven, making difficult the profit’s allocation to tax havens and ensuring of the equal conditions of competition.

According to the new regulations the transactions with tax havens which are subject of the documentation duty should be considered in the context of the following matters:

• direct – controlled transactions[1] (an entity in Poland enters into a contract with an entity which has its place of residence, seat or management on a territory or in a state which uses harmful tax competition). For such transactions the documentation threshold, independent of the type of transaction, amounts in one tax/accounting year 100 000 PLN (art. 11k sec. 2a CIT Act and art. 23w sec. 2a PIT Act) and
• direct – other than controlled transaction (an entity from Poland enters into a contract with an entity with its place of residence, seat or management on a territory or in a state which uses harmful tax competition). For such transactions the documentation threshold, independent of the type of transaction, amounts in one tax/accounting year 100 000 PLN (art. 11o sec. 1 CIT Act and art. 23za sec. 1 PIT Act) and
• indirect – controlled or other than controlled transaction (an entity from Poland does an indirect payment to a tax haven /beneficial owner’s place of residence, seat or management on a territory or in a state which uses harmful tax competition). For such transactions the documentation threshold, independent of the type of transaction, amounts in one tax/accounting year 500 000 PLN[2] (art. 11o sec. 1a CIT Act and art. 23za sec. 1a PIT Act)

In the first two of the discussed cases identification of the contractor that has a seat in a “tax haven” should not be difficult. Helpful in this field can be even the concluded contracts. Controversies can appear in the case of so called indirect cash flow and identifying of a beneficial owner of receivables.

Verification, if beneficial owner is a so called tax haven entity

Legal rules which regulate new duties of taxpayers require identifying who is a beneficial owner of receivables.

According to art. 11o sec. 1b CIT Act/ art. 23za sec. 1b PIT Act shall be presumed that a beneficial owner has place of residence, seat or management on a territory on in a state which uses harmful tax competition if the other party of the transaction (our contractor) does in a fiscal year or an accounting year settlements of accounts with entities having their seat or management on a territory or in a state which uses harmful tax competition. During identifying those circumstances taxpayers or companies which is not a legal entity are obliged to act with due diligence.

From the above mentioned definition should be concluded that the presumption, that the beneficial owner is a tax haven entity, is to apply if the other side of the transaction (our contractor) has any settlements of accounts with an entity from a tax haven. As “settlement of accounts” should be understood any form of regulating of receivables, among others: regulating of receivables with monies (payment with money), payments in kind (transfer of another property or provision of services) or in the way of compensation of reciprocal receivables and obligations.

To rebut the presumption it is necessary to demonstrate a contrary circumstance, namely the fact that the beneficial owner is not a tax haven entity. It is to assume that if taxpayers do not rebut the presumption that the beneficial owner is a tax haven entity (it does no transactions with entities from tax havens), they are obliged to prepare the transfer pricing documentation every single time when a transaction with a contractor is above the limit of 500 000 PLN (it applies to the controlled and not-controlled transactions)

Due diligence

It should be emphasized that the regulation of art. 11o sec. 1b CIT Act requires that the taxpayer should act with due diligence in verifying if the beneficial owner is a tax haven entity.

As acting with due diligence should be understood keeping a standard of undertaking of activities which should appropriate verify, if the other party of the transaction (our contractor) does no settlements of accounts with entities from tax havens.

The tax clarifications within the scope of the transfer pricing “Presumption and due diligence” (pl. „Domniemanie oraz należyta staranność”) of 2^nd of March 2021 show that for acting with due diligence in transactions with related and not-related parties, independent of their place of residence, it is sufficient to receive a statement of knowledge from the other transaction’s party which shows that the other transaction’s party does within the taxpayer’s tax year no settlements of accounts with a tax haven entity. The statement of knowledge should be received ex post, namely after the end of the taxpayer’s accounting year.

To sum up to rebut the presumption and to avoid preparing of the transfer pricing documentation taxpayers are obliged to get from your contractor in the transactions which exceed the amount of 500 000 PLN the statement of knowledge, that the contractor does not any settlements of accounts with entities from tax havens. Otherwise the taxpayers should prepare every single time in the case of the transaction exceeding the above mentioned amount to prepare the local transfer pricing documentation.

Sanctions for missing local transfer pricing documentation

For the taxpayers are provided high financial fines for not-submitting of the form TPR and declaration of preparing the local transfer pricing documentation, submitting the documents after the deadline or attestation of an untruth in the documents.

A taxpayer who does not fulfill the documentation obligation can be fined with so called additional tax obligation which amounts 20% of the taxation base – it applies to the transaction in which the tax documentation were not submitted (art. 58c §1 point 3 of the Act of 29^th of August 1997  – Tax Ordinance, Dz. U. z 2020 r. poz. 1325, hereinafter referred as: Tax Ordinance).

Moreover the Polish law system provides rules to sanction the infringements in a penal-fiscal way. According to art. 56c and 80e of the Act of 10^th of September 1999 – Penal Fiscal Code (Dz. U. z 2021 r., poz.408) a taxpayer can be fined with 720 daily rates for not-submitting, submitting the documentation after the deadline or attestation the information which are not a real state of affairs in the declaration of preparing the transfer pricing documentation and TPR. Thus the maximal penal-fiscal sanction for not submitting the documentation amounts 27 199 678,00 PLN.

It is necessary to emphasize that a natural person, who is responsible for a fiscal offence or a fiscal crime, cannot be fined with the additional tax obligation for the same deed (art. 58e Tax Ordinance).

[1] The term of the controlled transaction encompasses in principle any activities of various character and purpose which are undertaken by taxpayers with a related entity

[2] 500 000 PLN is about 108 980 EUR (middle exchange rate of the National Bank of Poland from 20.08.2021)

Download pdf: EN_ TAAC Solutions Alert_regulacje antyrajowe_sierpień 2021