Poland Releases Guidance On Transfer Pricing Comparability Analysis

; posted on
June 27th, 2019

The Polish Ministry of Finance issued an explanatory note addressing transfer pricing comparability analyses. This rule is binding the taxpayer to be used when the analysis performed to test whether transactions between related parties conducted until the end of 2018 are in line with the arms-length principle.

Selecting the most appropriate comparables

In order to choose the best comparables to test/check the arms-length prices, the government released guidance on procedure(s) to perform comparability analysis. Noting from the guidance, comparables could be selected locally, regionally, or even globally by considering comparability factors, including proper identification of a suitable market. The Polish Ministry explains that while Polish market comparables are not obligatory in a benchmark study, they shouldn’t be artificially excluded or omitted in the selection process.

The ministry also confirms that use of secret comparables is not allowed in Poland. It highlights that data from entities with ongoing losses or extraordinary profitability are not comparable with entities that have a limited risk profile. Individual analyses should determine the proper number of comparables used, with priority given to quality and then quantity in the benchmark study, the ministry states.

Apart from the selection of comparable, the guidance also provides guidance to perform the analysis using interquartile range when the comparables has been selected. When comparables have a lower level of comparability, it is feasible to use interquartile range. However, if significant discrepancies in the range are identified, the median or arithmetic average or weighted average should be vital. It is not indicated which of those should be prioritized.

The guidance differs from OECD guidelines

While most of the provisions align with OECD guideline, the Polish government inserted one provision that deviates from international standards. The explanatory note states that if it is not possible to prepare the compliance description, taxpayers can use data from associated companies.

Such an approach is not fully aligned with the OECD transfer pricing guidelines. Also, the language given to justify this approach is (i) confusing and (ii) internally inconsistent. It is not clear what the Polish Ministry of Finance means when justifying this discrepancy.

The ministry states that taxpayers should prove that data of the controlled transaction between associated companies are not affected by associated companies (example: if there is a formal association even though no transaction with the associated company). While this might be difficult to prove, such an approach might be easily be challenged by the tax authorities and trigger a dispute.

Source: Polish Government

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