Tax law provisions relating to transfer pricing arose from the need to exercise greater control over transactions between related parties – whether by personal, family or capital ties. The relevant provisions are designed to regulate transfer pricing in such a way as to prevent it from being used to deliberately reduce tax liability.
What is the purpose of transfer pricing documentation? In order to prove that associated enterprises apply transfer pricing in accordance with the applicable regulations, care must be taken to prepare an appropriate tax report. Maintaining such a report enables a smooth analysis of business activities and significantly minimises the risk associated with:
- criminal tax liability,
- VAT adjustments,
- tax interest,
- the application of a penalty tax rate.
The ongoing preparation of transfer pricing documentation reduces risk and enhances the security of associated entities’ data. It also serves as excellent evidence that transactions have been conducted in accordance with the law in the event of any audits.
Contents of local transfer pricing documentation
The format and components of well-prepared local transfer pricing documentation are laid down in advance by law. It should contain:- a description of the transaction,
- the relevant functions of the entities involved in the transaction,
- an analysis of the relationships between the entities,
- the method of calculating the rate and an indication of the factors that influenced its determination,
- the terms of the transaction, such as the payment deadline for the subject matter of the transaction and the method of payment.
A transfer pricing analysis is also a mandatory component (for medium-sized and large enterprises) of local transfer pricing documentation.
Contents of group transfer pricing documentation Related parties consolidated using the full or proportional method, which are required to prepare local transfer pricing documentation, where consolidated revenue exceeds PLN 200,000,000, must attach group transfer pricing documentation (Master File) to this documentation. The group documentation should include:
- a description of the group,
- a description of the group’s significant intangible assets,
- a description of the group’s significant financial transactions,
- a summary of financial and tax information.