Foreign branch does not benefit from simplification for micro and small enterprises
In the case of related parties with micro or small enterprise status, the local transfer pricing documentation may not include a transfer pricing analysis. The explanatory memorandum to the amendment to the CIT Act indicates that this simplification is a simplification for taxpayers, taking into account, for example, the financial and time expenses incurred in preparing such analyses.
As Weronika Gzyl of Thedy & Partners explains, with the above in mind, a Polish branch of a foreign entrepreneur who wanted to take advantage of the simplification for micro and small enterprises became doubtful whether this simplification also applied to him. Thus, it requested an individual interpretation from DKIS as to whether it could benefit from the simplification by not preparing a transfer pricing analysis. The branch took the view that since it met the conditions of a micro or small entrepreneur within the meaning of the Entrepreneurs’ Law, it would be entitled to benefit from the simplification.
The tax authority took a different view, holding in its interpretation that the regulations of the Entrepreneurs’ Law do not apply to foreign entrepreneurs. Thus, the provisions of the Entrepreneurs’ Law do not apply to a foreign entrepreneur operating in Poland through a branch. Therefore, it cannot be determined whether a Polish branch of a foreign entrepreneur has the status of a micro or small entrepreneur within the meaning of the Entrepreneurs’ Law. Consequently, the foreign branch will not be entitled to benefit from the simplification of not preparing a comparative analysis or a conformity analysis.
In addition, in the case of the simplification in question, doubts often arise as to how the statement contained in the transfer pricing information, which indicates that the prices in the transaction between related parties are set at market level, should be approached. Without a thorough transfer pricing analysis, a taxpayer has no assurance that it is actually carrying out transactions on arm’s length terms, i.e. terms that would be agreed upon by unrelated parties. On the other hand, the tax authorities may verify the arm’s length nature of such a transaction even though the related party has taken advantage of a simplification and has not prepared a transfer pricing analysis.