Timing of recognition of transfer pricing adjustments
If, from the beginning of the realisation of the transaction, the prices between related parties were established on non-market terms, the profitability adjustment should be made on general principles, according to interpretation no. 0111-KDIB1-2.4010.216.2023.1.DP.
The case dealt with by the Director of the KIS concerned two companies: a Polish company, the manufacturer, and a Spanish company, the distributor. The Polish company sold goods to the Spanish company, which then distributed them further to customers. As the comparative analysis obtained by the parties in 2023 indicated, the prices agreed between the companies were not at market level from the beginning. The Polish company showed an understated profitability on the present transaction. It therefore wanted to correct it, but was unsure whether a transfer pricing adjustment was possible under Article 11e of the CIT Act.
In the body of the request for an individual interpretation, the applicant asked the authority whether the in-plus adjustment planned by the company meets the conditions set out in Article 11e of the CIT Act and should be recognised in the accounting period to which it relates, i.e. retrospectively? Or, if the answer to the first question is negative, should the adjustment planned by the company be recognised in the period in which the invoice or other document confirming the reasons for the indicated adjustment is issued, i.e. on an ongoing basis?
– The head of the KIS, having taken into account that the terms of the transaction between related parties were non-marketable already at the stage of its conclusion, concluded that the transfer pricing adjustment (not constituting the transfer pricing adjustment referred to in Article 11e) should be allowed under the general rules. Therefore, this adjustment should be included in the tax settlement on an ongoing basis,” points out Rafał Boguszewski, consultant at Thedy & Partners.