At the beginning of April, the Ministry of Finance published the draft of general ruling covering the definition of a controlled transaction (link, the document in Polish). Taking into account the regularly emerging doubts of Polish taxpayers and questions as to whether, for example, the transfer pricing documentation for dividends should be prepared, the general ruling is a step in the right direction.

Pursuant to the provisions of the currently binding CIT Act / PIT Act, a controlled transaction is an activity of economic character which is identified on the basis of the actual behaviour of the parties, including the attribution of income to a permanent establishments, the conditions of which have been established or imposed as a result of the affiliations.

The draft of general ruling indicates that the recognition of a given activity as a controlled transaction requires the total fulfilment of three conditions:

  1. Activities must have economic character, i.e. have the characteristics of an economic activity (but it is not necessary for the entity to run a business); the features indicated in the draft are: (i) acting for profit, (ii) activities within an organized structure, (iii) activities of an independent nature.
  2. The actual behaviour of the parties - in order to determine whether an action is a controlled transaction, the actual actions of the parties should be analysed, not the contractual provisions. The analysis should be done separately from the perspective of each participant.
  3. The terms and conditions are agreed / imposed as a result of the affiliations - to determine whether we are dealing with a controlled transaction, it does not matter whether the activities were carried out in accordance with the arm's length principle.

Please note that the draft does not address the issue of free of charge benefits nor the attribution of income to a permanent establishment.

The draft of ruling indicates that activities such as payment of dividends, capital surcharge and payment of profit by a non-legal entity to its shareholders do not constitute a controlled transaction within the meaning of the transfer pricing regulations.

It was justified by the fact that such events / conditions are shaped by legal regulations and the premise that the conditions are established / imposed as a result of affiliations is not met. The consequence of such a ruling will be, for example, no obligation to prepare the transfer pricing documentation for the above-mentioned events, which will undoubtedly please the taxpayers.

However, one should beware of the automaticity in the use of the amenities indicated in the draft - we would like to point out that in the latest TPR for 2020 transactions related to partnership agreements of a non-legal person, joint venture agreements or agreements of a similar nature should be reported.

Comments on the draft of general ruling can be submitted until the 30th of April this year.