The issue of transfer pricing is currently a hotly discussed tax aspect. It takes various forms – active work undertaken by working groups at the Ministry of Finance, amendments to legal regulations resulting in increasingly strict obligations and an increased number of inspections performed by tax authorities.

Tax authorities are not going to slow down

The data made available by the Ministry of Finance shows that in 2019 there were 471 inspections performed in relation to transfer pricing, which means an increase of about 76% in comparison with 2018. In 2018–2019, the number of inspections concluded with an upward adjustment increased as well (139 in relation to 193). Furthermore, in 2019, as a result of inspections, the amount of the charged income tax exceeded PLN 450 million and was twice as high as that of 2018. The foregoing information shows that in recent years, we have been observing not only an increase in the number of completed inspections but also (or probably first of all) their much higher effectiveness. It should be noted that thanks to the introduction of new tools (CIT-TP/PIT-TP information filed for 2017–2018 and the TPR form filed since 2019), tax authorities obtained access to detailed data concerning the transactions effected with the related entities. We can conclude that the information provided enables the precise selection of the entities for control as well as improves the efficiency of the activities undertaken by tax authorities.

Who may expect transfer pricing inspections?

Our experience shows that the selection of taxpayers to be inspected is currently of great importance. Tax authorities analyse the information provided by taxpayers in CIT-TP/PIT-TP forms (and since 2019 in the TPR form) in a detailed way. The risk of inspection is the highest for the taxpayers who declare the conclusion of transactions which – by their very definition – may raise doubts of the authorities, for example financial, service transactions or transactions linked to the gratuitous provision of services. Furthermore, year by year, the tax authorities – for the purposes of transfer pricing inspections – continue to be highly interested in the taxpayers fulfilling the following criteria, to name but a few:

  • high dependence of income on intra-group transactions,
  • conclusion of significant transactions with entities having their registered offices in countries applying harmful tax competition,
  • high share of costs of intangible services and financial costs in the costs of operating activities,
  • recognition of loss in a given year or repeated recognition of losses in the subsequent years,
  • rapid reduction of profits or achievement of lower profitability than the competitive entities in a given industry, especially in the case of a positive assessment of the undertaking’s efficiency, e.g. growth in revenues,
  • completion of restructuring processes.

In addition, attention should be paid to the activities of the Transfer Pricing and Valuation Department at the Ministry of Finance, which employs numerous qualified specialists. Their competence includes the development of tax administration policy in the scope of transfer pricing, the undertaking of activities aimed at creating new regulations and the provision of explanations in relation to their application. When relevant authorities select taxpayers for control, they also take into account the conclusions arising from the expert opinions prepared by the said department.

Preparations for inspection

First of all, it should be emphasised that transfer pricing documentation, which is a fundamental document during an inspection, cannot be drawn up at the last moment. It is the first source of information about a transaction or the functional profile of the taxpayer and gives tax authorities significant grounds for drawing conclusions. Therefore, it is so important to include therein information which complies with the actual state. It should also be remembered that the preparation of transfer pricing documentation is a complex process, very time-consuming, and often requiring the involvement of many employees. For that purpose, it is necessary to perform a detailed review of all transactions and business events effected with related entities and countries applying harmful tax competition in terms of their compliance with transfer pricing regulations.

At the beginning, it is necessary to identify all business partners being related entities or having their registered offices in tax havens, and then prepare a list of all transactions concluded with such undertakings, taking their value into account. Only on that basis it is possible to define the transactions for which the statutory limits imposing the obligation to prepare the documentation complying with the provisions of the CIT Act have been exceeded. Attention should also be paid to the terms and conditions being the grounds for the conclusion of the transactions, with special emphasis placed on those which generate loss, are not economically profitable, or do not have a business justification. They are the ones which will certainly be of greatest interest to the inspecting authorities. Such an analysis should result in the assessment whether the transactions concluded with related entities or the entities having their registered offices in countries applying harmful tax competition are justified and consistent with internal principles, e.g. with transfer pricing policy.

The next stage of preparations for a possible transfer pricing inspection should be the careful preparation of transfer pricing documentation, with special attention paid to its coherence with the transfer pricing policy, concluded agreements, and the actual terms and conditions of transactions. We would like to emphasise that the legal system effective since 2019 provides for some transactions, e.g. restructuring, additional requirements exceeding the elements of the standard Local File (this issue is discussed in detail in a separate article in this publication entitled “Restructuring – definition and methods of its documentation”). At the same time, it should be noted that the preparation of transfer pricing documentation in a manner limited only to the fulfilment of the formal requirements stipulated in the CIT Act is not sufficient. Certainly, such requirements are extremely significant but they comprise only one aspect of correctly prepared transfer pricing documentation. The documentation should reflect – in a precise manner – the economic terms and conditions agreed by and between the business partners in a given transaction. The functional analysis or the price calculation method which is not in compliance with the actual state significantly increase the risk of challenging the terms and conditions of the transaction and the probable upward adjustment of tax.

Furthermore, it should be remembered that the tax regulations effective from 1 January 2019 stipulate that the preparation of the benchmarking analysis is obligatory for all entities obliged to prepare the Local File (the only exclusion are the transactions to which safe harbour provisions are applicable, provided that strictly defined terms and conditions are fulfilled). The essence of performing the benchmarking analysis is to present the arm’s length terms and conditions for similar transactions through the comparison of data concerning the transactions concluded by and between the related entities and the data concerning the independent entities. It should also be emphasised that in view of the regulations effective since 2019, the Local File should include the comparison of our transaction with the results of the performed analysis and justify any deviations in that scope. Such amendments are aimed at ensuring and confirming that a given transaction complies with the arm’s length principles. And thus, the new regulations have introduced the next obligatory element of the documentation which requires considerable preparations and a significant involvement on the taxpayer’s part.


Intensified activities of tax authorities in Poland lead to the conclusion that an increased number of transfer pricing inspections may be expected in the coming years and that they will be more restrictive and effective. Therefore, it is necessary to remember that the preparations for the possible inspection include at least the drawing up of thorough transfer pricing documentation and a benchmarking analysis justifying the information provided in CIT-TP/PIT-TP or TPR forms. However, the only effective way of securing transfer pricing is an advance pricing agreement (APA) as only this document may constitute the real protection of the taxpayer against the possible questioning of the arm’s length nature of the transactions by tax authorities and against the upward adjustment of the income.


Piotr Wierzejski, Senior Manager in Transfer Pricing Team at KPMG in Poland
Weronika Michalak, Consultant in Transfer Pricing Team at KPMG in Poland, the office in Łódź