Transfer pricing in 2024 – a short guide for entrepreneurs
What are transfer prices and why are they important?
Transfer prices are prices that are established between related entities, i.e., for example, in transactions between companies from one capital group or in transactions with entities from so-called tax havens. These are prices at which goods, services or assets are sold/purchased. The purpose of transfer pricing regulations is to prevent tax optimization through the use of understated or overstated prices in transactions.
Transfer pricing is important for several reasons, including:
- Preventing tax avoidance: transfer pricing rules aim to ensure that profits are taxed in the country where they arise, rather than being shifted to lower-tax countries.
- Maintaining fair competition: transfer prices should reflect market conditions to prevent unfair competition from companies that artificially lower costs.
- Minimizing the risk of tax audits: properly documented transfer prices reduce the risk of tax audits and possible sanctions.
Transfer pricing regulations change regularly. It is therefore worth following these changes to stay up to date and adjust the documentation you prepare to current requirements.
Learn abour our service: Transfer pricing in Poland
Transfer Pricing – what are the limits in 2024?
In order to determine whether an organization is subject to transfer pricing regulations, it must first be determined whether it conducts transactions with related entities, i.e. whether these are so-called controlled transactions or with entities from so-called tax havens. It is worth emphasizing that the scale of the business is irrelevant in this case; even smaller companies may be subject to transfer pricing regulations, because the value of the transaction counts.
If it is already known that the company is conducting transactions with related parties and their value exceeds certain statutory limits, then it may be necessary to prepare transfer pricing documentation. It is also important to note that the value of the limits is different for different transactions.
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The transfer pricing limits in 2024 are:
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How to determine if transactions have exceeded the limits?
To check this, you should carefully analyse accounting documents, contracts and payments made in a given tax year. If the value of transactions with related or offshore entities exceeded the limit, and a given taxpayer does not qualify for the exemption, it is necessary to prepare transfer pricing documentation and submit a TPR declaration.
Transfer pricing documentation is a key element that allows companies to justify the market nature of the prices used in transactions with related/haven entities. It includes a detailed description of these transactions, the valuation methods used and a comparability analysis (benchmarking analysis).
The TPR declaration is an electronic report by which entrepreneurs provide tax authorities with information about transactions carried out. It is a supplement to transfer pricing documentation and is used for quick verification of tax risk.
Let us remind you that from 2023 the TPR declaration can only be signed by:
- designated member of the management board with a qualified electronic signature, or
- a representative who is a lawyer, legal adviser, tax adviser or auditor.
In addition, the person signing the declaration must have a UPL-1 power of attorney to sign the declaration electronically, registered at the tax office.
Three key benefits of proper transfer pricing management are:
- Reduced tax risk: properly documented transfer prices reduce the risk of tax adjustments and additional financial burdens.
- Facilitating cooperation with tax authorities: well-prepared documentation facilitates communication with tax authorities and increases the chances of a positive decision in the event of a tax audit.
- Increased company credibility: proper transfer pricing management demonstrates the professionalism and reliability of the company.
Read also: Estonian CIT and preparation of transfer pricing documentation
Transfer pricing - what are the penalties for lack of documentation?
Failure to prepare or incorrectly prepare transfer pricing documentation can have serious financial consequences for your company. According to the applicable regulations, a fine may be imposed for:
- lack of documentation,
- inconsistency of the documentation with the actual state of affairs, or
- failure to submit transfer pricing information on time.
In addition to the fine, the tax authority may impose other sanctions on the company, i.e. additional tax liabilities. Their amount depends on the value of the transaction and may be as follows:
- 20% of the sum of unduly reported or overstated tax loss and unreported income if the company failed to submit the required documentation or the documentation was incomplete;
- 30% of the above sum if the value of the basis for establishing the additional liability exceeds PLN 15 million and the company has submitted incomplete documentation or has not submitted it at all.
The lack of transfer pricing documentation is therefore a serious omission that can lead to the imposition of high financial penalties on the entity. That is why it is so important to ensure that the required information is prepared correctly.
Transfer pricing – how can we help?
Transfer pricing issues are complex, but entrepreneurs do not have to face this challenge alone. Our experts will help:
- Understand the regulations and stay up to date with changes
- Apply knowledge into practice
- Prepare a transfer pricing policy
- Prepare benchmarking analysis
- Prepare the necessary transfer pricing documentation and TPR form
- In communication with tax authorities in the event of tax audits and proceedings.
