The transaction value caps for the purpose of completing transfer-pricing documentation must be expressed in net amounts - such is the position off the Head of the National Revenue Administration (hereinafter: NRA Head) as expressed in a binding tax ruling of 24 May 2019 (case no. DPP13.8221.25.2019.GTM). The ruling concerns provisions of the CIT Act in the wording in force since 31 December 2018.

The NRA Head thereby changed the ruling of the Director of the National Revenue Information of 2 March 2018 (case no. 0111-KDIB1-3.4010.523.2017.1.APO) which was unfavourable to the taxpayer.

Why transaction value excluding VAT?

In the amended ruling, the authority pointed out that the value of a transaction should not include VAT as the tax normally has no bearing upon the determination of the taxpayer’s income (or loss). The thresholds specifying the documenting duty are established taking into account revenues within the meaning of accounting regulations, i.e. as a rule revenue excluding VAT.

Arguing for the position, the NRA Head pointed out the implications entailed in an interpretation whereby VAT should be taken into account in determining the value of the transaction in question.

The authority also noticed that transactions of identical pre-tax value could have different impacts on the taxpayer's revenue depending on the VAT rate applied. In addition, one should bear in mind the differences in VAT between transactions made between domestic entities and those made between a domestic entity with a foreign one. If it is assumed that the net value of a domestic transaction is equal to that of a foreign transaction, then the gross value of the domestic transaction will be higher than that of a foreign transaction.

The amount of VAT can have bearing on the taxpayer’s obligation to draw up transfer-pricing documentation. The NRA Head stated, relying on the principle of solving doubtful issues in favour of the taxpayer (in dubio pro tributario), that taking into account the net value of a transaction is favourable to the taxpayer.

Transaction value since 1 January 2019

Under the regulations in force since 1 January 2019, transfer-pricing documentation must be drawn up for a transaction whose value, less VAT, has exceeded prescribed thresholds in a given fiscal year. Hence, the legislator has made precise the issue of transaction value in the amended regulations, leaving taxpayers with no doubts in that respect.

Magdalena Walczyńska, Tax Consultant, ATA Tax Sp. z o.o.

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