The practice of polish tax authorities in recent years indicates a significant increase in the number of conducted audits regarding controlled transactions. The actions taken are becoming increasingly effective, so it’s worth being prepared for them. How many audits have tax authorities conducted recently, and how do the verification activities proceed? You’ll find out all about it in the article below.
Transfer pricing audit statistics
Individual Customs and Tax Offices are conducting more and more proceedings aimed at determining whether transactions between related parties are concluded on terms consistent with transfer pricing regulations. In recent years, there has been a change in the approach of officials regarding conducted audits. Currently, they focus on analytics rather than on verifying specific formal elements of prepared transfer pricing documentation.
The effectiveness of the actions taken is evidenced by specific numbers. According to data published by the Ministry of Finance, in 2020 alone, as a result of proceedings conducted under transfer pricing regulations, irregularities were found in taxpayers’ income amounting to approximately PLN 1.320 billion. This resulted in an increase in the tax obligations of controlled taxpayers by a total of PLN 380 million.
In 2021, the intensity decreased due to the COVID-19 pandemic, the total estimated income for that year amounted to PLN 780 million, indicating a year-on-year decrease of approximately 40%. However, the reduced number of audits did not last long; the statistics from the first half of 2022 infer that the total estimated income in this period exceeded PLN 850 million, which is more than in the entire year of 2021.
Audit Procedure
The purpose of the audit is to examine whether the entity conducting transactions with related parties has not led to a reduction in taxable income. The compliance of transactions with the market range is supposed to be evidenced by the transfer pricing documentation possessed and the attached transfer pricing or compliance analysis. Since it is not regularly submitted to authorities, it must be made available to the inspecting authority within 14 days from the date of receipt of the request.
During the audit, authorities focus on comparative analysis and data segmentation, attempting to challenge the reliability of the established market range. Therefore, meticulousness in preparing this document is necessary.
It’s also worth noting that, in justified cases, authorities may demand the preparation and submission of documentation without a comparative analysis within 30 days from the date of receipt of the request. This provision also applies to transactions not subject to documentation requirements due to their low value.
For more information on what actions to take to ensure the market conditions of conducted transactions, please read the article The purpose of Transfer Pricing Audit.
Conclusion of Transfer Pricing Controls
After the conclusion of the audit, officials prepare a protocol. The information contained therein indicates whether the factual state described in the tax documentation prepared by the entity under verification deviates from that established by the authority.
Any discrepancies between the above descriptions typically lead to tax proceedings, as a result of which the taxable income will be determined at the level indicated by the authority. Therefore, it is important to ensure that transfer pricing documentation is meticulously maintained and in accordance with the provisions of income tax laws and OECD guidelines. If these conditions are met, and the conducted transfer pricing analysis confirms the market values of the documented transaction, there is no reason to worry in case of a potential audit.
If you’re also interested in knowing what elements transfer pricing documentation should contain, we encourage you to read our article ABC of Transfer Pricing Documentation.
Karolina Bojko
Piotr Zarański