m.i.kamiński

Two new executive orders to the article 25 of the Act on the Personal Income Tax and article 11 of the Act on the Corporate Income Tax have been published in the Journal of Laws no. 160 of 29th September 2009:
1. Regulation issued by the Finance Minister of 10th September 2009 on the Method of Determining Income Earned by the Natural Persons by Assessment and Method and Procedure of Eliminating Double Taxing of Natural Persons in the Case of Correction of Profits of Affiliated Entities (item 1267)
and
2. Regulation issued by the Finance Minister of 10th September 2009 on the Method of Determining Income Earned by the Corporate Bodies by Assessment and Method and Procedure of Eliminating Double Taxing of Corporate Bodies in the Case of Correction of Profits of Affiliated Entities (item 1268)

Both regulations have entered into force on 14th October 2009. Amended provisions shall apply to cases initiated after that date.
In both texts of original regulations several significant changes have been introduces:
1. Provisions describing rules of examining comparability of transactions have been located in the isolated part „Analysis of transactions comparability” – this indicates that the conditions described in those provisions apply to the comparability analysis including use of all tax methods of transaction analysis, not just 3 “traditional” methods (comparable uncontrolled price method, cost plus method and resale price method),
2. It was underlined that in the analysis of transaction comparability it is necessary to include “differences within the economically significant features of compared transactions” and analysis of entities participating in the transaction should describe which entities play functions, engage assets and incur economically significant risks; additionally the example catalogue of factors that the auditors must take into consideration during that analysis was broadened – broadening of the catalogue shall result in including factors that must be taken into consideration during professional analysis of transfer prices (the above applies to factors usually included by the tax payers, which up till today were often omitted by the auditors),
3. It was indicated that the provisions of the regulation relate to determining part of income that can be attributed to the facility (Permanent Establishment):
1. national entity abroad (which results from – not very precisely formed – article 11, paragraph 1 updop and article 25, paragraph 1 updof),
2. foreign entity in Poland (which is a result of introducing on 1st January 2007 provision of article 11, paragraph 8a updop and article 25, paragraph 6a updof),
4. It was indicated that assessment of the income can be performed by the fiscal control entities only by using methods indicated in the tax regulations – it is worth noticing that it may cause problems relating to use of those entities other methods of analysing; a question arises if those entities accept analysis performed on the basis of other methods, which up till today was common (and rational) practice, or if they try to perform their own analysis using tax regulations,
5. Provision §7, paragraph 3 has been added in order to enable (in cases, when “applied method does not require strict comparability of the transaction subjects”) performing comparability analysis in relation to the branch to which the transaction relates to,
6. Additional condition has been introduced that relates to the auditors applying method chosen by the tax payer: tax payer presents tax documentation (the condition was not included in the previous regulation); it is worth emphasising that the auditors can apply the method chosen by the tax payer only when the tax payer applies comparable uncontrolled price method, resale price or cost plus method; such obligation does not apply to the bodies when the tax payer uses profits distribution method or transaction net margin method,
7. The rules relating to applying profits distribution method using the residual analysis method have been defined; it was indicated that during the first stage of analysis it is necessary to divide basic profit basing on the functional analysis of entities performing routine function, engaging typical assets and taking standard risk; at the same time, the reference to the situation when the profits sum earned by the entities participating in the transaction is lower than the profits sum attributed during the first stage of residual analysis (i.e. during the next stage there is loss to be distributed) has been removed from the definition – variance in interpretation of that provision in the context of distributing residual “loss” can be expected.
Procedure of eliminating double taxing in cases of correcting profits earned by affiliated companies
A new chapter has been added to the new provisions, which describes the procedure of eliminating double taxing basing on the Arbitrary Convention and agreement on avoiding double taxing. This procedure is initiated after a claim is submitted by the tax payer to the Finance Minister. Regulation’s provision describes the form of claim and the course of action and its finalisation. In particular, the new regulation specifies deadlines for submitting claims for initiating procedure of reaching mutual agreement on the basis of the Arbitrary Convention or on the basis of agreements on avoiding double taxing. According to the experts on the transfer process „it is necessary to pay attention to the fact that in the light of changes taking place in the methodology of transfer price control – tax documentation in order to remain effective defending device must include comparable analysis indicating the concordance of the solutions accepted with the market price rule.” (Tax Alert Deloitte nr 29/2009)