From January 1, 2021, Poland has introduced new transfer pricing regulations for transactions with entities registered in tax havens.

If statutory documentation thresholds are exceeded, transfer pricing documentation requirements are triggered for:

• Taxpayers are concluding transactions with related entities or tax haven entities;
• Taxpayers are entering into transactions where the beneficial owner has their place of residence, seat or management in a tax haven.

There is a presumption that the beneficial owner is established in a tax haven if the other party to a transaction concluded by a Polish taxpayer makes any settlements with an entity from a tax haven. Due diligence should be exercised in determining these circumstances.

Doubts about the new obligation to document transactions

The scope of the amended regulations, covering both transactions constituting a taxpayer’s cost or income, raises many doubts. In particular, it is unclear what steps should be taken to exercise due diligence with regard to identifying a tax haven entity and establishing whether it should be considered to be the beneficial owner of a transaction. This is particularly difficult in light of the introduced presumption that any transaction involving tax havens concluded by the contractor of a Polish entity may trigger the documentation obligation in Poland.

In practice, these regulations suggest that a Polish taxpayer may be required to document and justify the arm’s length nature and economic purpose of any transaction (whose value exceeds PLN 500,000) concluded with an entity that, apart from its relations with that Polish taxpayer, may buy goods, for example, from Hong Kong, even if that fact has nothing to do with the transaction with the Polish taxpayer.

Draft clarifications of the Ministry of Finance regarding transactions with tax havens

On March 5, the Ministry of Finance published draft explanations regarding the presumption and due diligence required in regard of transactions with tax havens. Unfortunately, the proposal is not exhaustive. In its part relating to compliance with the due diligence requirement, the Ministry of Finance limited itself to reassuring that it is sufficient to have the contractor's declaration of not making settlements with entities from tax havens. The declaration would refer to the other party's settlements in the tax year, therefore, according to the Ministry of Finance, it should be obtained post factum, i.e. after the end of the taxpayer's tax year.

However, it was not indicated, inter alia, how to prove that, despite making such settlements, the beneficial owner is not a tax haven entity, e.g. whether it is enough to name the beneficial owner (e.g. obtain an appropriate statement in this regard), or it is necessary to analyze the settlements between the contractor and the tax haven entity to prove that they do not involve a transfer of funds from payments made by a Polish taxpayer. This is important in particular in light of the fact that the Polish entity may not have grounds or the possibility of obtaining from an unrelated contractor detailed information on transactions concluded with entities from tax havens that would enable the rebuttal of the presumption.

In addition, the explanations indicate that obtaining such a declaration is not sufficient when it comes to related entities  ̶  in this situation, in order to rebut the presumption, the taxpayer should, in the opinion of the Ministry of Finance, verify other documents, such as the CbC report, transfer pricing documentation, financial statements (regardless of obligations resulting from the provisions on documenting transactions with related entities, where the documentation thresholds are higher).

Tax consultations on the new guidelines of the Ministry of Finance

Until April 20, 2021, you can submit opinions, conclusions and comments on the draft as part of the ongoing tax consultations and our team will be submitting our remarks to the draft.