Finance Minister proposes increase of documentation thresholds
The Ministry of Finance wants to make the transaction thresholds above which obligations related to the preparation of transfer pricing documentation arise more realistic. The transactions in question are tax haven transactions.
Such a proposal was included in the recently published draft amendment to the CIT act and other acts. The amendment would cover art. 11o of the CIT act and art. 23za of the PIT act. According to these provisions, it is necessary to prepare local transfer pricing documentation for taxpayers and companies which are not legal persons making transactions
– directly with an entity having its place of residence, registered office or management board in a territory or country applying harmful tax competition (the so-called paradise entity), if the value of this transaction for the tax year, and in the case of companies not being legal entities – for the financial year, exceeds PLN 100,000, and
– indirectly, if the actual owner is a tax haven entity and the value of the transaction for the tax year, or in the case of companies which are not legal persons – for the financial year, exceeds PLN 500,000.
– The Minister of Finance rightly notes in the explanatory memorandum to the draft amendment that the materiality thresholds provided for in these provisions, the exceeding of which gives rise to a tax obligation, need to be made more realistic. Therefore, in the case of direct transactions in paradise, he proposed to double the documentation materiality threshold. For indirect transactions, on the other hand, different materiality thresholds were assumed for certain types of transactions while maintaining the proportions used in this provision. The draft provides for the basic materiality threshold to remain at PLN 500,000, but for financial and commodity transactions it was five times higher and amounted to PLN 2,500,000 – points out Cyprian Werykowski, tax adviser, director at Thedy & Partners.
Such a change will certainly reduce the number of tax obligations in situations where it concerns transactions with a low risk of shifting income to the actual owner in the tax haven (commodity transactions) and transactions whose value at the level corresponding to the currently binding materiality thresholds in practice would not generate such significant income transfers to tax havens that would justify imposing a documentation obligation on them (financial transactions).