The preparation of transfer pricing documentation is required for entities that are related with assets, equity or personal (also family-owned), which conclude partnership agreements, make transactions with each other or cooperate for a joint venture. The transfer pricing documentation should prove that the prices used are market-based. In the absence of appropriate documentation, prepared in statutory terms, they expose themselves to severe sanctions and increase the risk of the revenues being estimated by tax authorities.
Tax documentation should include:
- determination the functions that the entities participating in the transaction will fulfill,
- determination of all estimated costs related to the transaction, the date and form of payment,
- the method of calculating the profit and determination the price of the subject of the transaction,
- determination of the economic strategy and other activities within it - in the case the transaction value was influenced by the strategy adopted by the entity,
- the other factors - if in order to determine the value of the subject of the transaction by entities participating in the transaction, the other factors were taken into account,
- specification of the expected benefits by the entity obligated to prepare the documentation related to obtaining benefits - in the case of contracts for benefits (including services) of an intangible nature.
Documentation limits as well as transaction limits are also important for the identification of documentation obligations. From 1 January 2017, entities making transactions are required to have tax documentation if their revenues or costs for the previous tax year exceed the equivalent of EUR 2 million, and the transaction itself has the equivalent of min. 50 thousand euro at the level of revenues or costs in the amount indicated above.
Preparation of transfer pricing documentation is also obligatory in the case of transactions with entities from the so-called tax havens, if the total amount of benefits due in the tax year exceeds the equivalent of EUR 20,000. Therefore, in contrast to the previous case, in this situation there is a lower transaction threshold (20,000 euro) and the sum of revenues or costs in the previous year is irrelevant, and it does not have to be a related entity.