The beginning of the year is a period of intensified work for many companies, involving the preparation of Polish statutory financial statements and the annual CIT return (for entities for which the tax year coincides with the calendar year). This is also a key moment to comprehensively review transfer pricing matters for the completed tax year and verify whether transactions with related parties comply with the arm’s length principle.
In Poland the importance of transfer pricing continues to grow, following the Ministry of Finance’s announcements regarding increased tax audit activity in this area. In addition, new reporting obligations such as CIT SAF-T files (detailed xml reporting of all transactions recognised for CIT purposes) and KSeF (the National System of e-Invoices) provide tax authorities with a significantly broader range of data, enabling more effective selection of entities for audit and identification of potential irregularities in intra‑group settlements.
Conditions of intra-group transactions that are inconsistent with the arm’s‑length principle may result in income reassessment, additional tax liabilities, and fiscal penal liability for management board members. As a result, transfer pricing has become a critical element of tax risk management within an organisation.
Outside the Arm’s Length Range?
If, after the end of the tax year, the outcome of controlled transactions with related parties is found to fall outside the arm’s length range – all is not lost – the regulations provide for the possibility of making transfer pricing adjustments pursuant to the Polish CIT Act. If an adjustment meets the conditions indicated in this provision, it should be recognised for tax purposes in the year to which it relates. Ideally, it should be issued before filing the annual CIT return (and if the accounting books have not yet been closed, there may still be an opportunity to avoid temporary differences).
However, for an adjustment to be considered a transfer pricing adjustment within the meaning of the Polish CIT Act, it is necessary to meet certain formal conditions:
- Arm’s‑length nature of the transaction ex ante – during the tax year, the terms of controlled transactions were set on terms that would have been accepted by unrelated entities.
- Change in material circumstances or availability of ex post data – during the tax year there has been a change in material circumstances affecting the terms of the transaction or after the end of the year, the actual costs or revenues that are necessary to ensure an arm’s‑length result are known.
- Symmetry of the adjustment – the taxpayer holds a statement from a related entity or other accounting evidence confirming that the correction was made in the same amount on the counterparty’s side (for adjustments reducing the taxpayer's income).
- Legal basis for the exchange of tax information – there is a legal basis for tax information exchange between Poland and the jurisdiction of the related entity, such as a double tax treaty.
Meeting the above conditions is crucial for the correct tax recognition of a TP adjustment and reducing the risks of challenges by the tax authorities, such as exclusion from the tax result or allocation of the TP adjustment to a different tax year.
Practical Challenges
However, meeting the formal conditions is only one part of the process – in practice transfer pricing adjustments often raise questions that may potentially lead to disputes with tax authorities.
One of the most common dilemmas is selecting the appropriate point within the arm’s‑length range to which the adjustment should be made. The answer is not always straightforward, but in practice consistency with the group transfer pricing policy and proper reflection of the functional profile of the parties are of key importance.
Concerns also arise regarding adjustments resulting from budget updates or changes to cost allocation keys. In such cases, the question emerges whether the given adjustment indeed constitutes a transfer pricing adjustment under the CIT Act, or whether general rules for recognising taxable revenues or tax-deductible costs apply. The tax authorities’ approach in this area is not uniform and depends largely on the specific facts of the case.
In addition, the recent judgment of the Court of Justice of the EU in the Arcomet Towercranes case (C-726/23) has reopened the discussion on the VAT treatment of transfer pricing adjustments in Poland. The judgment implies that an individual assessment of the facts is always required, particularly regarding any direct link between the adjustment and a specific supply of goods or services.
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