Following the government’s release on transfer pricing and mutual agreement procedure rules, the Polish government has issued a notice on the new intragroup interest rate safe harbor.
The safe harbor applies only to controlled debt (i.e. concluded between related parties), which by the taxpayer's decision is included in the safe harbor simplification scheme provided under the personal income tax or the Corporate Income Tax Act. Moreover, according to the final transfer pricing regulatory package, the safe harbor is open to taxpayers with a total related-party debt no greater than PLN 20 million ($5.3 million) or the equivalent in foreign currency.
To qualify for the safe harbor, the debt must not include charges other than the specified interest rate or have a term longer than five years and the lender must not be in a jurisdiction that practices harmful tax competition. Nonqualifying debt is subject to the arm's length principle applicable to other types of related-party transactions.
Under the guidance, the safe harbor rate sets at the sum of a reference rate — the Warsaw Interbank Offered Rate for złoty-denominated debt and the applicable London Interbank Offered Rate for debt denominated in U.S. dollars, euros, British pounds, and Swiss francs — plus a 2 percent margin. If the reference rate is negative, the notice requires that the absolute value is used as the base rate.
The types of the base interest rate and the margin amount provided in the guidance cannot, however, constitute a benchmark or type of standard / norm for either the taxpayer or the tax authority in determining the market interest rate, e.g. in controlled transactions involving loans, credits and bonds that do not meet the conditions specified in the related regulations.
The new safe harbor was introduced along with a series of other significant revisions to Poland’s transfer pricing regime including updates to the MAP process, implementation of country-by-country reporting, and guidance on the selection of transfer pricing methods that follow the 2017 OECD transfer pricing guidelines and recognize the applicability of discounted cash flow valuation methods for intangible transfers. Poland’s prior transfer pricing rules prohibited the tax administration from using unspecified transfer pricing methods, including profit-based valuation methods.
Poland’s Ministry of Finance announced the rules for the new interest safe harbor for related-party debt in a December notice with further issued explanation on January 3, which took effect January 1, 2019.
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