When conducting transfer pricing audits of financial transactions, tax authorities rely on bank offers. This can lead to hugely simplified income assessments. Finding what terms of financial transactions are at arm’s length is one of the most difficult transfer pricing issues. The main problem lies in obtaining appropriate data and information to inform the arm’s length assessment. In financial transactions normally made in the market, at least one party is usually a financial institution such as a bank. But comparing intercompany financing to bank financing is often considered questionable as these two kinds of financial transactions differ widely in terms of their business terms and formal considerations. The allocation of functions and risks is typically different, too, as is the configuration of the parties’ market environment. For those reasons it is in many cases unreasonable to compare a formalised bank credit facility to a simple intercompany loan. Businesses may find it additionally troubling to have to prepare their benchmarking studies using Polish market comparables. It is unclear under Article 9a(2c) CIT Act if foreign databases may be used as a tool to assist in determining the arm’s length terms of financial transactions.
For the full text of the article by tax advisor Andrzej Jagiełło, see Rzeczpospolita online, the Dobra Firma weekly and here.