Estonian CIT and the preparation of transfer pricing documentation

The Voivodeship Administrative Court (WSA) in Gdańsk confirmed that the obligation to prepare transfer pricing documentation also applies to companies taxed with the so-called Estonian CIT.

Transfer pricing – companies with Estonian CIT must also report

On 18 June 2024, the Voivodeship Administrative Court in Gdańsk issued a ruling (reference number I SA/Gd 76/24) confirming the previous position of the Director of the National Tax Information (KIS) (interpretation of 17 November 2023, reference number 0111-KDIB1-1.4010.527.2023. 1.MF) on the obligation to prepare transfer pricing documentation by companies taxed with the so-called Estonian CIT.

The company's arguments for the lack of reporting obligation

The case began with a joint-stock company taxed at a lump sum on corporate income, which rented real estate from a related entity in the tax year from 1 December 2021 to 30 November 2022. The value of the rental transaction exceeded PLN 2 million, and the company ended the fiscal year with a net loss, i.e. it recorded no profit.

The company stated that it is not subject to the documentation obligation in the field of transfer pricing, emphasizing that in accordance with the provisions (article 11n point 3 of the CIT Act), controlled transactions are exempt from the documentation obligation, the value of which does not permanently constitute revenue or tax-deductible costs, and the revenues and the costs of obtaining them do not occur for taxpayers taxed at a lump sum.

KIS and WSA have a completely different opinion

The Director of the National Tax Information (KIS), in the interpretation issued on 17 November 2023, did not agree with the company's arguments. KIS emphasized that companies taxed at a lump sum on company income are also subject to transfer pricing regulations.

The position of KIS was shared by the Voivodeship Administrative Court (WSA) in Gdańsk. In the judgment issued on 18 June in the discussed case, the court ruled that art. 11n point 3 of the CIT Act does not refer only to tax revenues and the costs of obtaining them and directly applies to all types of activities conducted by a taxpayer taxed under general and special rules.

The judgment is invalid.