The reallocation of functions and resources between entities is an inherent element of operations of international capital groups striving to optimise their business activities. Any reorganisation activities undertaken between related entities which may constitute restructuring as interpreted in transfer pricing regulations should be, however, appropriately studied and documented.

Broad definition of restructuring

The regulations effective since 2019 have introduced a broad definition of restructuring which assumes the joint fulfilment of two conditions. It should be emphasised that the legislator has not provided for exclusions for reorganisations under the same tax jurisdiction, and therefore the transfers made between domestic related entities will also be subject to assessment in terms of the regulations in question.

The first condition for considering a given reorganisation as the restructuring is that it has to include a significant change of trade or financial relations, including the termination of effective agreements or the amendment to their significant terms and conditions. Yet, the legislator has not specified a catalogue of events (closed or even including examples only) which may be considered as the restructuring as interpreted in transfer pricing regulations. However, making use of the recommendations of the Transfer Pricing Forum, that is an advising body operating at the Ministry of Finance, the examples of the events which may constitute the restructuring should include the sale of an organised part of the enterprise, the change of the functional model of distributor or manufacturer, as well as – what is particularly important in the context of the current pandemic – the transfer of a team or a part of the employees between the entities, or limitation or expansion of the scope of the regional operations of one entity at another related entity’s expense. The corrections to the TP policy or settlements methods will not be considered to be the restructuring if they are not associated with the transfer of functions, assets or risks (yet, such changes will be analysed pursuant to the general principles arising from Article 11c of the CIT Act).

The second condition for considering a given reorganisation as the restructuring stipulates that it has to be connected with the transfer of functions, assets or risks between the related entities if the expected average annual EBIT of the taxpayer in the three-year period after performing the reorganisation differs by at least 20% from the financial result that would be generated in the situation if such transfer had not been effected. The analysis of the change of the average annual EBIT should be performed upon the performance of the restructuring, that is based on the financial data prepared in advance (ex ante analysis). The regulations do not impose the obligation to verify the compliance of the applied financial forecasts with the actual data (ex post analysis) – with the exclusion of the situation when the valuation includes hard to value intangibles. The ex post assessment may, however, include the reliability and accuracy of the prepared forecasts of financial data and the assumptions made for them, which may be of particular importance in the context of the current pandemic. Thus, any and all financial forecasts prepared in connection with the restructuring should be duly documented in a manner allowing their verification and recalculation in the later period.

Objective of restructuring regulations

For the tax authorities, the restructuring regulations constitute a tool allowing for the efficient verification of the terms and conditions of reorganisation, including the justification for and the amount of the remuneration paid by and between the related entities in the transactions involving, in particular, the transfer of the potential to generate profit. To give an example, when examining the transaction of sale of fixed assets (e.g. of production machines), an authority may state that the transaction has been in practice accompanied with the transfer of rights under commercial contracts. In consequence, the taxpayer who has made such a transfer will have the income adjusted upwards at the amount of the additional remuneration for the transferred profit potential, the so-called exit fee.

Ways of documenting the restructuring

It cannot be forgotten that the taxpayers participating in the restructuring processes are expected to fulfil a number of new documentation and reporting obligations which are as follows:

1. Transfer pricing documentation

The restructuring should be appropriately recognised in the Local File. The events constituting the restructuring are presented in the part constituting the description of the basic activity of the related entity (the so-called general part), within the information about the transfers of economically significant functions, assets or risks. In addition, when the value of the transactions constituting the restructuring exceeds the documentation thresholds, the Local File is prepared for them in the part constituting the description of the transaction, including the functional analysis, in compliance with §2 of the Regulation on the transfer pricing documentation.

2. Restructuring documentation

However, the currently effective regulations for the events meeting the definition of the restructuring provide for the additional requirements exceeding the elements of the standard Local File and regulated in Chapter 4 of the Regulation on transfer pricing. This relates to the earlier regulations which directly referred to the requirements of preparing separate restructuring documentation. Since 2019, the comparability study in the case of the restructuring also includes, among others:

  • the identification of commercial or financial relations between the related entities before and after the restructuring, including the identification of actual transactions constituting the restructuring, the analysis of business reasons for the restructuring and the expected benefits, and the analysis of viable options. The information in that scope enables the determination of the changes in the functional analysis caused by the restructuring, and in consequence, the determination of the scope of the transfers effected;
  • the determination of the tax consequences of actual transactions constituting the restructuring (of which, to give an example, the consequences of the tax recognition of the restructuring fee);
  • the determination of the scope of transfer of the potential to generate profit as a result of the restructuring,
  • the specification whether the remuneration relative to the restructuring is due, if yes – the assessment whether its amount is justified. It should be remembered that in a given case, the remuneration may not be justified or could have been already taken into account, e.g. in the price for the transferred organised part of the enterprise.

3. TPR form

The events constituting the restructuring (provided that they exceed the documentation thresholds) should also be shown in the transfer pricing information filed with the use of the TPR form, and the manner of showing the transaction should be consistent with its description presented in the documentation. It should also be remembered that when making the choice of the relevant category of a transaction in the form, the taxpayer specifies at the same time whether any remuneration has been agreed in the restructuring.

4. Analysis of the performed valuation

Since 2019, the valuation techniques have been directly recognised under the provisions of tax acts as one of the transfer pricing verification methods. Yet, this method can be applied only in the case when it is not possible to apply any of the basic methods (that are the comparable uncontrolled price method, resale price method, cost-plus method, transactional net margin method, profit split method). Furthermore, the exact way of applying the valuation technique is outlined in § 15 of the Regulation on transfer pricing.

In consequence, each valuation performed for the purposes of the restructuring (and not only) should undergo an additional analysis in terms of transfer pricing. It should be emphasised that such an analysis has two objectives:

  • The first of them is to confirm the correctness of the choice of the valuation method in terms of transfer pricing, that is to justify that the valuation is the method which is the most applicable in given circumstances and that none of the basic methods could be applied or their application would not be adequate in given circumstances.
  • The second objective is to confirm the manner of performing the valuation in terms of transfer pricing (§ 15 of the Regulation on transfer pricing), that is to assess it in terms of applied financial forecasts, quantities or indicators applied in the calculation of the value of the subject matter of a controlled transaction, the selection of the discounting factor (if applicable) or the level of value of the controlled transaction expected by each of the parties to the transaction.

5. Business justification for the restructuring

An important stage of the restructuring process is the preparation of the business justification for the implemented changes. As mentioned hereinabove, in terms of transfer pricing, such a justification which includes, among others, the analysis of economic reasons for the restructuring and the expected benefits, as well as the analysis of viable options, is an element of the restructuring documentation.

In the case of a merger or division of the companies/partnerships, the obligation to prepare a written report justifying the restructuring, its legal and economic grounds, and in particular the ratio of exchange of shares, results directly from the provisions of the Code of Commercial Partnerships and Companies. It should also be remembered that the preparation of the reliable business justification, including economic analyses and profitability reports, constitutes the necessary requirement of the tax neutrality of the restructuring. In the case of a merger or division of the companies/partnerships, the possibility of applying the exclusions from the taxable revenues provided for in Article 12 (4) (3e), (3f) and (12) of the CIT Act has been made conditional upon the fact whether the restructuring was performed for justified economic reasons. In the case of their absence, it is presumed that the main purpose or one of the main purposes of the restructuring was to avoid or evade taxation.

6. MDR

The restructuring may also constitute a tax scheme subject to MDR. Special attention should be paid to the following two specific hallmarks of the arrangement:

  • The transfer of rights to hard to value intangibles;
  • The transfer of functions, risks or assets between the related entities if the expected annual financial result before interest and taxes (EBIT) in the three-year period after such transfer was equal to less than 50% of the expected annual EBIT that would be generated in the situation if the transfer had not been made.


Given the regulations under analysis, we recommend that taxpayers pay special attention to intra-group restructuring processes, prepare suitable documentation when a given event fulfils the restructuring criteria, including business justification, and perform the relevant restructuring reporting.


Barbara Popowska, Manager in Transfer Pricing Team at KPMG in Poland
Aleksandra Butowska, Senior Consultant in Transfer Pricing Team at KPMG in Poland