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Transactions between related parties should be conducted in accordance with the arm’s-length principle. The tax authorities can increase the taxable base if the pricing used between related parties differs from that which would have occurred between unrelated parties in a similar business transaction and if the difference results in income being shifted from a Polish taxpayer to another entity (whether a Polish resident or not). The Polish Corporate Income Tax Law also contains detailed requirements for transfer pricing documentation.
Since 1 January 2006 taxpayers have been able to reduce the transfer pricing risk by applying for an Advance Pricing Arrangement (APA). An APA is a decision issued by the Minister of Finance in response to a taxpayer’s application. Based on such a decision, a taxpayer is obliged to follow a specified methodology when calculating the transfer prices applicable to transactions with related entities. In exchange, the tax authorities cannot challenge the agreed methodology in any subsequent proceedings.
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