Transfer pricing adjustments in Poland under CIT rules – key principles for companies

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Annual transfer pricing adjustments under Polish CIT

Transfer pricing adjustments in Poland are important for companies operating within capital groups, especially where settlements between related parties are calculated during the year using planned, budgeted or historical data. After the end of the tax year, actual costs, revenues or profitability may differ from the assumptions used to calculate remuneration.

This raises a practical question: should an annual year-end adjustment be treated as a standard correction of revenues or costs, or as a transfer pricing adjustment under Article 11e of the Polish Corporate Income Tax Act?

Recent Polish tax ruling practice confirms that annual adjustments made after year-end as part of transfer pricing verification, often referred to as outcome testing, may qualify as transfer pricing adjustments for CIT purposes. However, the adjustment must aim to align settlements with the arm’s length principle and must result from the adopted transfer pricing mechanism, rather than from a separate service, an error or a change in the scope of services.

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When can an adjustment qualify?

Not every adjustment between related parties is a transfer pricing adjustment. Its classification depends mainly on its purpose and economic nature. The adjustment should relate to a controlled transaction, refer to the terms agreed between related parties and serve to maintain the arm’s length principle.

This is particularly relevant in models based on planned costs. During the year, remuneration may be calculated using budgeted or historical figures. Only after the year-end closing are the actual costs and revenues known. If the company’s actual profitability falls outside the arm’s length range resulting from a benchmarking analysis, an annual adjustment may be needed.

Such an adjustment does not always have to be allocated to specific invoices or months. If profitability is tested on an aggregated annual basis, the adjustment may also relate to the entire tax year.

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Conditions, documentation and risks

Before recognising an adjustment for Polish CIT purposes, companies should verify whether the conditions under Article 11e of the Polish CIT Act are met. Key aspects include the arm’s length nature of the transactions during the year, the availability of actual costs or revenues, the direction of the adjustment and its impact on revenues or tax-deductible costs.

Proper documentation is essential. In practice, companies should be able to show the settlement model applied during the year, the calculation of actual profitability, the comparison with the benchmarking analysis, the business rationale for the adjustment and consistency with transfer pricing documentation and Transfer Pricing Reporting (TPR).

Common risks include no clear adjustment mechanism in the transfer pricing policy, outdated benchmarking analysis, lack of confirmation from the related party, mechanical profit equalisation without a functional analysis, and inconsistencies between accounting records, CIT settlement, transfer pricing documentation and TPR information.

The ruling of the Director of the National Revenue Information supports a taxpayer-friendly approach, but it does not mean that every annual adjustment automatically meets the statutory conditions. Each case requires an individual review of the settlement model, purpose, documentation and tax impact.

Read the full article here: Transfer pricing adjustments in Poland under CIT rules – key principles for companies.

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If you have any further questions or require additional information, please contact your business relationship person or use the enquiry form on the HLB Poland website.

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