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The APA process in Poland appears to attract more attention of taxpayers due to the recent trends and changes in transfer pricing environment in Poland. Crido Taxand, Taxand Poland, explores.
The main reason for that is the new corporate tax regulations in Poland that limit the tax deductibility of intra-group services and royalties significantly (up to 5% of tax EBITDA over PLN 3m). The new tax rules that are effective from 2018 can be a major challenge for groups that conclude many service transactions (also low value adding services) and license transactions. Under the new rules, the way to treat such costs as deductible over the limit is the positive APA decision issued by the Polish tax authorities. Currently, the Polish Minister of Finance is working on a simplified procedure for APA for these services which is believed to be much quicker and less expensive than the standard APA process.
The decision on going into APA can be also perceived as an useful solution to counteract the increasing tax risks being the result of the new mindset of the Polish tax authorities that treat the transfer pricing as an area of tax leakage and – as a result – high priority during tax audits. As it was announced many times in the media by the representatives of the Polish Ministry of Finance, the tax administration already run TP-targeted audits and the effectiveness of them is going to rise. One of the reason for this can be the increasing number of TP experts with vast experience (also ex-Big4) who decided to join the department of Ministry of Finance being responsible for dealing with key taxpayers. It is also anticipated that due to the increased reporting obligations ( e.g. by submitting a special TP-form), identifying the taxpayers concluding risky transactions will be quicker and more precise.
On the other hand, tax administration encourages taxpayers to apply for APA. The number of decisions is increasing. Also the simplified APA for services should provide a “fast track” process especially for low value adding services.
Last, but not least, the APA can also be a cure for the TP documentation in Poland, as the positive decision eliminates the TP documentation requirement. It can help in dealing with the documentation in Poland on a local level which, in order to be compliant with the Polish law, requires specific, detailed information to be included in the TP documentation. Our experience shows that group Master Files need to be locally supplemented with several additional information about the entities from the group to meet the statutory requirements. Similarly, the benchmarking analyses must include Polish comparable data to fulfil the formal obligations. As a result, it requires to double the documentation work both on central and local level which makes process not only more expensive but also more difficult to maintain the documentation integrity across countries.
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In the past, the main reason for not going into APA was the costs and time. Today, it may appear that the costs of not having such arrangement, especially for standard service transactions, may be much higher, not to mention that the tax risks play the important role in the changing environment.