Safe harbour rule in Slovakia

One of the most important changes to the Income Tax Act of Slovakia is the specification of the determining method of the economic ties between close persons (e.g., husband and wife). The new method has to be applied from 1 January 2023. Furthermore, the legislator clarified the definition of a controlled transaction when a dependent activity is not considered as a controlled transaction.

In this context, following the example from other countries, a safe harbour rule is being introduced in the Income Tax Act of Slovakia. The rule exempts taxpayers from the obligation to document the valuation method and conditions in controlled transactions. The safe harbour includes controlled transactions from which taxable income earned or tax expense deducted is not exceeding EUR 10,000 or EUR 50,000 in the case of the loan principal.

Furthermore, the procedure for calculating the difference by which the prices or conditions in controlled transactions differ from the prices or conditions that would be used between independent persons, is specified. This procedure shall be in accordance with the OECD Transfer Pricing Guidelines.

Changes related to PEs and APAs

From 2023, the rules for determining the tax base in the case of existence of a permanent establishment (PE) in the Slovak Republic have also been clarified, as in the case where a non-resident taxpayer does not have a permanent establishment, but the income earned within the territory of the country is also taxable in the country according to international law. When determining the tax base of a permanent establishment, it is also recommended to respect the procedure in accordance with the OECD Transfer Pricing Guidelines.

At the same time, the tax administrator’s procedure is specified in cases, where the prices in controlled transactions do not correspond to the arm’s length principle. From the new year, the Ministry of Finance of the Slovak Republic can also issue a decision in advance pricing agreement (APA) for more than five tax periods, and at the same time, taxpayers can also submit the transfer pricing documentation in a foreign language.

Other changes to the Income Tax Act of Slovakia

The Income Tax Act of Slovakia will be amended with the possibility of legal write-off of the receivable in the case, if the receivable has ceased to exist as a result of forgiveness during preventive restructuring. Also, the creation of adjustments to receivables against the debtor in preventive restructuring will be a tax-deductible expense.

The last significant change to the Income Tax Act of Slovakia effective from 1 January 2023, is the new procedure of taxpayer’s registration, where the tax administrator will register the taxpayer ex offo on the basis of data from publicly available registers. The tax administrator will announce such fact on the website of the Financial Directorate of the Slovak Republic.

As the result of the transposition of the ATAD directive, a rule is also being introduced to limit the tax deductibility of net interest costs if their amount exceeds EUR 3,000,000. The aforementioned rule will take effect on 1 January 2024, the aim is to prevent the artificial erosion of corporate tax bases through debt financing. The tax base will be increased by interest, that exceeds 30% of the tax EBITDA indicator. At the same time, the tax administrator allows the transfer of unused interest to future tax periods.

If you want to know more about the latest amendments to the Income Tax Act of Slovakia or other tax issues in the country, we recommend you visit the website of Mandat Consulting, k.s. and contact the local WTS experts in Slovakia.

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Significant changes to the transfer pricing regulations in Poland came into force from 1 January 2019. The amendments align Polish regulations with the latest OECD Guidelines following the BEPS projects.

On 14 November 2018, the country’s president signed an amendment to the Polish Tax Law that includes transfer pricing regulations in Poland. The new law effective from 1 January 2019 repeals the former rules included in Article 9a of the Polish CIT law and replaces them with the rules of Chapter 1a. This is the most complex revision of transfer pricing regulations in Poland since their introduction.

As we wrote in an earlier article about the proposed changes, the most important amendments include, among others, the possibility of using new transfer pricing methods and valuation techniques as well as the introduction of safe harbours.

Transfer pricing methods

Apart from the standard transfer pricing methods (CUP, C+, resell minus, TNMM and Profit Split) taxpayers are allowed to use other valuation techniques and methods in justified cases.

Recharacterisation or non-recognition of transactions

According to the new transfer pricing regulations in Poland, tax authorities have the power to disregard or delineate transactions that apply the principle of substance over form.

Safe harbour for low value-adding services

The OECD cost plus 5% for low value-added services has been implemented. Taxpayers are required to keep detailed calculations of the fees paid. A safe harbour for IC loans is applicable for loans up to five years if:

• total loans from the related entities do not exceed PLN 20 million (roughly EUR 4.6 million) and
• there are no warranty fees or other charges for granting a loan, and
• the interest rate is set based on the official announcements published by the Polish Ministry of Finance.

Transfer pricing adjustments

These regulations will eliminate divergent tax rulings issued by the National Fiscal Information on the tax treatment of transfer pricing adjustments. The transfer pricing adjustment should be reported as an income or cost for tax purposes in the period to which it relates, provided that the taxpayer has a statement from the related party confirming recognition for tax purposes.

Local file documentation

New materiality thresholds apply for local files to limit the documentation burden: PLN 10 million (roughly EUR 2.3 million) for transactions concerning tangible assets and financing, and PLN 2 million (roughly EUR 460,000) for services and other transactions. Domestic transactions are excluded from the local file requirement unless the counterparties are located in a special economic zone, receive tax relief or have incurred losses in a tax year. A benchmark analysis has become an obligatory element of the documentation for each transaction in a local file. The deadline for preparing the local file is nine months after the end of the tax year.

Master file documentation

Related entities consolidated using the full or proportional method are required to have a master file if the group generated consolidated revenues of more than PLN 200 million (roughly EUR 46.5 million) in the preceding financial year. The deadline for preparing the master file is 12 months after the end of the tax year. Master files will be accepted in English, however, the tax authorities may request the submission of a Polish version within 30 days.

Taxpayers can choose to prepare their local file and master file documentation for 2018 under the new system.

Formal statement on documentation

All members of the taxpayer’s management board have to submit a statement that the local file was prepared and the intercompany pricing is at arm’s length. The lack of such a statement or making a false statement will trigger a potential fiscal penal liability of a fine up to roughly PLN 21.5 million (EUR 5 million). The first submission deadline is September 2020.

Penalties for the transfer pricing assessment according to the new transfer pricing regulations in Poland

A new penalty system will replace the famous 50% tax rate (applied where there is no transfer pricing documentation). The additional tax (over 19%) can range from 10% to 30% – the latter where the transfer pricing assessment is over PLN 15 million (roughly EUR 3.5 million) and there is no documentation.

If you would like to know more about the new transfer pricing regulations in Poland, please visit the homepage of WTS&SAJA Sp. z o.o., the exclusive representative of WTS Global for Poland. 

WTS Klient Hungary is a member of the WTS Global transfer pricing consulting team. As a member of this team we endeavour to find solutions to seemingly impossible problems with the help of personal contacts, regular training and consultations, and relying on the WTS Global central TP team. Should you have questions we are happy to assist you.

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