In general, prices et between parties must be set on an arm's length basis. If they have not been, the Authorities have the power to adjust the taxable income of the parties for Corporate Income Tax purposes. In general, any sale which is undervalued is treated as a donation to the purchaser. For the seller, additional income may be assessed. A similar power exists in respect of VAT.
The following methods have been provided for assessing transfer prices:
1. Comparison of uncontrolled price
The arm's length price is determined on the basis of actual prices used in comparable transactions between independent parties.
2. The resale price method
The arm's length price is determined by deducting the normal mark-up applied to the resale of the goods/services when sold to an unrelated party.
3. The cost-plus method
An appropriate mark-up is added to the supplier's production costs. The mark-up should reflect the mark-up earned on similar transactions with unrelated parties.
Finally, where the above methods cannot be used, the following method may be adopted.
4. Transaction profit method
Where the appropriate purchase price is difficult to establish, the profit margin is used to establish whether the arm's length principle is respected. However, reductions in profit due to normal economic or organisational factors are allowed.
It remains to be seen just how the Polish tax authorities will apply this legislation in practise.
Tax laws and practise are constantly being revised and, whilst every effort is made to ensure that the information is accurate and timely, no decision should be taken on the basis of the information herein without first consulting with KPMG Polska.
Should you have any questions in relation to the above issues, please contact:
Oliver Sinton KPMG Polska LIM Center - Marriott Hotel - IX floor Al. Jerozolimskie 65/79 00-697 Warsaw, Poland Tel: +48 (22) 630 7236 Fax: +48 (22) 630 6355
This information was correct as of 7 March 1997.