Transfer pricing adjustments in Poland under CIT rules – key principles for companies

Transfer pricing adjustments in capital groups

Transfer pricing adjustments in Poland are an important issue for companies operating within capital groups, especially where settlements between related parties are calculated during the year on the basis of planned, budgeted or historical data.

After the end of the tax year, actual costs, revenues or profitability may differ from the assumptions used to calculate remuneration. This raises a practical question: should the annual year-end adjustment be treated as a standard correction of revenues or costs, or as a transfer pricing adjustment under Article 11e of the Polish Corporate Income Tax Act?

When can an annual adjustment qualify?

Recent Polish tax ruling practice confirms that annual adjustments made after year-end as part of transfer pricing verification, often referred to as outcome testing, may qualify as transfer pricing adjustments for CIT purposes. However, the adjustment must aim to align settlements with the arm’s length principle and must result from the adopted transfer pricing mechanism.

Not every adjustment between related parties will qualify. The purpose and economic nature of the adjustment are decisive. In particular, the adjustment should relate to a controlled transaction, refer to the terms agreed between related parties, serve to maintain the arm’s length principle and result from actual costs, revenues or other material circumstances identified after year-end.

This is common in models based on planned costs. A company may calculate remuneration during the year using budgeted data, and only after the year-end closing verify whether the actual profitability falls within the arm’s length range resulting from a benchmarking analysis.

Documentation and practical risks

Before recognising an adjustment for Polish CIT purposes, companies should verify whether the conditions under Article 11e of the Polish CIT Act are met. The direction of the adjustment and its impact on revenues or tax-deductible costs are particularly important.

Proper documentation is essential. Companies should be able to show the settlement model applied during the year, the calculation of actual profitability, the comparison with benchmarking analysis, the business rationale for the adjustment and consistency with transfer pricing documentation and Transfer Pricing Reporting (TPR).

Typical risks include no clear adjustment mechanism in the transfer pricing policy, outdated benchmarking analysis, lack of confirmation from the related party, mechanical profit equalisation without functional analysis and inconsistencies between accounting records, CIT settlement and transfer pricing documentation.

For companies interested in investing in Poland or already conducting business in Poland, correct treatment of intra-group settlements and taxes in Poland is therefore an important element of tax risk management.

Read the full article here: Transfer pricing adjustments in Poland under CIT rules – key principles for companies.