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Obligation to prepare transfer pricing documentation for companies established following the transformation – answer to a parliamentary question

2018-07-04

In response to a parliamentary question, on 25 May 2018 the Ministry of Finance gave answers to two questions, very important form the perspective of transfer pricing issues: “Are the taxpayers enumerated in Article 9a paragraph 1c items 2 and 3 of the Corporate Income Tax Act obligated to prepare transfer pricing documentation for the first tax year?” and “How should the taxpayers described above determine the limit referred to in Article 9a paragraph 1 item 1 of the Corporate Income Tax Act?”.

The questions raised relate in principle to an issue whether companies established following the transformation of a single entrepreneur business activity  in a limited liability company or through the contribution by a member – an individual carrying on business activity – of the business carried on, may be treated as “a taxpayer starting the activity, and hence obligated to prepare transfer pricing documentation as of the month in which the statutory threshold of revenues or costs within the meaning of the Accounting Act of EUR 2,000,000 is exceeded.

In response, the Ministry of Finance, referring to statutory regulations, informed that a taxpayer starting business activity shall not be understood as a taxpayer established following the transformation of a company that is not a legal person. It applies also to natural persons who contributed towards the capital of a newly established entity the business previously carried on by such persons or the PLN equivalent of at least EUR 10,000. The above entities are under obligation to prepare tax documentation for the first tax year, provided that they satisfy also other conditions set out in the law.

And in an answer to the second parliamentary question, the Ministry of Finance noted that the Corporate Income Tax Act contains clear norms enabling to determine financial thresholds after exceeding of which there is an obligation to prepare the documentation.

Consequently, a taxpayer established in the above circumstances is obligated to prepare tax documentation in the first tax year, regardless of the revenues earned or costs incurred, if the entity being transformed was obligated to prepare tax documentation for the financial year preceding the establishment of the taxpayer. 

 

Kinga Duszna, Tax Consultant, ATA Tax Sp. z o.o.

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