Transfer Pricing in Poland: Essential Guide for Small and Medium Enterprises

Reading time: 15 minutes

Table of Contents

• Introduction to Transfer Pricing in Poland
• Polish Transfer Pricing Legal Framework
• Documentation Requirements
• Exemptions for SMEs
• Transfer Pricing Methods
• Compliance Calendar and Deadlines
• Common Challenges and Solutions
• Case Studies
• Best Practices
• Conclusion
• FAQs

Introduction to Transfer Pricing in Poland

Navigating the complex landscape of transfer pricing in Poland can feel like trying to solve a puzzle with constantly changing pieces. If you’re running a small or medium enterprise (SME) with related-party transactions, you’ve likely experienced that moment of dread when contemplating your transfer pricing obligations.

Here’s the straight talk: Polish transfer pricing regulations have undergone significant changes since 2019, with further modifications in 2021 and 2022. These changes have created both challenges and opportunities for SMEs operating in the Polish market.

Transfer pricing refers to the prices at which related entities exchange goods, services, or assets. While this might sound straightforward, the regulatory framework surrounding these transactions is anything but simple. The Polish tax authorities, like their counterparts worldwide, are increasingly scrutinizing these transactions to ensure they’re conducted at arm’s length – as if between unrelated parties in comparable circumstances.

For SMEs, the stakes are particularly high. With limited resources compared to larger corporations, compliance burdens can feel disproportionate. Yet, the consequences of non-compliance – penalties, audits, and potential damage to your business reputation – make this an area you simply can’t afford to overlook.

Polish Transfer Pricing Legal Framework

The foundation of Poland’s transfer pricing regulations rests primarily on the Corporate Income Tax Act and the Personal Income Tax Act, both of which incorporate OECD Transfer Pricing Guidelines principles. But what does this mean for your day-to-day operations?

Key Legislative Acts

The current transfer pricing landscape in Poland is shaped by several pivotal legislative developments:

• Corporate Income Tax Act (CIT Act) – Specifically Articles 11a to 11t, which define related entities, documentation requirements, and valuation methods.
• Personal Income Tax Act (PIT Act) – Parallel provisions for business owners operating as sole proprietorships or partnerships.
• Tax Ordinance – Establishes procedural rules, including those related to advance pricing agreements (APAs).
• Ministry of Finance Regulations – Detailed executive regulations that specify documentation formats, safe harbors, and transaction categories.

Dr. Janusz Fiszer, a renowned Polish tax expert, notes: “The evolution of Polish transfer pricing regulations reflects the country’s commitment to international standards while addressing specific local economic conditions. SMEs must understand that these rules aren’t merely compliance exercises but tools for ensuring economic fairness in the marketplace.“

Recent Regulatory Changes

The regulatory landscape hasn’t stood still. Recent years have brought significant changes, including:

• Introduction of a new three-tiered documentation approach (Local File, Master File, Country-by-Country Reporting)
• Implementation of safe harbor provisions for certain routine services and loans
• Shift toward electronic filing of transfer pricing documentation
• Modified thresholds for documentation requirements, providing relief for some SMEs
• Introduction of the TPR form (Transfer Pricing Information Return) replacing the simplified reporting form CIT-TP/PIT-TP

Understanding these changes isn’t just about compliance—it’s about strategic business planning. The right approach can transform what seems like a regulatory burden into an opportunity for more efficient business operations.

Documentation Requirements

Let’s face it: documentation is often the most intimidating aspect of transfer pricing compliance. But breaking it down into manageable components can make this task less daunting.

Three-Tiered Approach

Poland follows the OECD’s three-tiered approach to transfer pricing documentation:

1. Local File (Dokumentacja Lokalna) – Detailed information about local taxpayer’s related-party transactions.
2. Master File (Dokumentacja Grupowa) – Overview of the multinational group’s global operations.
3. Country-by-Country Report (CbCR) – Financial and tax data for each jurisdiction where the group operates.

For most SMEs, only the Local File is relevant, as Master File and CbCR obligations typically apply to larger entities. However, if your company is part of a larger group, you might need to provide information for these higher-level documents as well.

Local File Contents

The Local File must include:

• Description of the entity, including its organizational and management structure
• Description of the transaction, including the functions, assets, and risks analysis (FAR analysis)
• Transfer pricing analysis, including benchmarking studies for comparable transactions
• Financial information relevant to the transaction
• Documents related to the transactions (contracts, agreements, etc.)
• A statement signed by the company management confirming that the local documentation is complete and prices are set at arm’s length

Quick Scenario: Imagine you run a medium-sized software development company in Warsaw that provides IT services to your German parent company. Your annual transaction value is 3.5 million PLN. You’ll need to prepare a Local File documenting how the service fees were calculated, demonstrating they reflect market rates through benchmarking studies, and analyzing the functions performed, assets used, and risks assumed by both entities.

Exemptions for SMEs

Now for some good news: Polish legislators recognize that SMEs shouldn’t bear the same compliance burden as multinational giants. Several exemptions and simplifications are available specifically for smaller enterprises.

Transaction Thresholds

The obligation to prepare transfer pricing documentation applies only when transaction values exceed specific thresholds. As of 2022, these thresholds are:

For many SMEs, these thresholds mean full exemption from documentation requirements. However, it’s crucial to track your transaction values carefully throughout the tax year to anticipate when you might cross these thresholds.

Safe Harbor Provisions

Poland has introduced several “safe harbor” provisions that can significantly simplify compliance for SMEs:

• Low value-added services – If you charge a markup between 2% and 5% on certain routine services (like accounting, HR, or IT support), you may qualify for simplified documentation.
• Loans and credit facilities – For certain intra-group loans, using interest rates based on Ministry of Finance announcements plus a specific margin can qualify for safe harbor treatment.
• Re-invoicing without markup – Simple pass-through costs without markup may be exempt from benchmarking requirements.

Maria Kowalska, Tax Director at a mid-sized manufacturing company in Krakow, shares: “The safe harbor provisions have been a game-changer for our business. Previously, we spent weeks preparing benchmarking studies for routine support services provided to our subsidiaries. Now, with the 5% markup safe harbor, we’ve reduced our compliance time by nearly 70% while maintaining confidence in our transfer pricing position.“

Transfer Pricing Methods

Selecting the appropriate transfer pricing method is crucial for demonstrating that your related-party transactions comply with the arm’s length principle. Polish regulations recognize the five standard OECD methods, plus other methods when necessary.

Traditional Transaction Methods

These methods directly compare prices or gross margins:

• Comparable Uncontrolled Price (CUP) Method – Compares prices charged in controlled transactions to prices charged in comparable uncontrolled transactions. This is often preferred for commodity transactions or when exact comparables exist.
• Resale Price Method – Starts with the price at which a product is resold to an independent entity, then subtracts an appropriate gross margin. Particularly useful for distribution activities.
• Cost Plus Method – Adds an appropriate markup to the costs incurred by the supplier in a controlled transaction. Common for manufacturing or service provision.

Transactional Profit Methods

When traditional methods aren’t suitable, these methods examine profit allocations:

• Transactional Net Margin Method (TNMM) – Examines the net profit margin relative to an appropriate base (e.g., costs, sales, assets). This is the most commonly used method in practice due to its flexibility and data availability.
• Profit Split Method – Allocates profits between related entities based on their relative contributions. Useful for highly integrated operations or when unique intangibles are involved.

For Polish SMEs, the TNMM is often the most practical method due to the relative ease of finding comparable data. Public databases like Amadeus or OrbisPTP-Pro contain financial information for thousands of European companies that can serve as potential comparables.

Practical Roadmap for Method Selection:

1. Analyze the nature of your transaction (goods, services, intangibles)
2. Consider data availability for potential comparable transactions
3. Evaluate which method best captures the economic reality of your business arrangement
4. Document your rationale for selecting the particular method
5. Perform the analysis consistently year after year unless circumstances change significantly

Compliance Calendar and Deadlines

Staying on top of transfer pricing deadlines is essential to avoid penalties. The Polish tax year generally follows the calendar year, but compliance obligations extend well beyond December 31st.

Key Deadlines

For SMEs subject to transfer pricing requirements, these are the critical dates to mark in your calendar:

• Transfer Pricing Documentation (Local File) – Must be prepared by the end of the ninth month after the tax year-end (usually September 30th)
• Statement on Transfer Pricing Documentation – Must be submitted electronically by the end of the ninth month after the tax year-end
• TPR Form (Transfer Pricing Information Return) – Due by the end of the ninth month after the tax year-end
• Master File – If required, must be prepared within 12 months after the tax year-end (usually December 31st)

Pro Tip: Don’t wait until the deadlines approach. Start gathering documentation early, especially benchmarking data, which can take significant time to compile and analyze. Setting internal deadlines at least one month before the statutory requirements gives you buffer time for unexpected complications.

Penalties for Non-Compliance

The Polish tax authorities have strengthened enforcement measures for transfer pricing violations. Potential penalties include:

• Administrative fines for missing or incomplete documentation (up to PLN 30 million)
• Additional tax liability of 10-30% of understated income or overstated loss
• Personal liability for company officers who provide false statements (including potential criminal liability)
• Extension of the statute of limitations for tax assessments

For SMEs, these penalties can be existential threats. A systematic, calendar-driven approach to compliance is your best protection against these risks.

Common Challenges and Solutions

Even with the best intentions, SMEs face unique challenges in transfer pricing compliance. Understanding these challenges and having strategies to address them is crucial for success.

Limited Resources and Expertise

Unlike large corporations with dedicated transfer pricing teams, SMEs often lack specialized knowledge and resources.

Solution: Consider a hybrid approach. Develop basic in-house capabilities for routine documentation and data gathering, while engaging external consultants for complex analyses like benchmarking studies or method selection. Online courses specifically tailored to Polish transfer pricing requirements can also help build internal expertise at a reasonable cost.

Finding Comparable Data

Identifying truly comparable transactions or companies is often challenging, especially in specialized industries.

Solution: Consider industry-specific databases or regional benchmarks that may better reflect your business reality. Polish tax authorities generally accept pan-European comparables, which significantly expands your data pool. Document any adjustments made to improve comparability, such as working capital or geographic market adjustments.

Tomasz Nowak, CFO of a medium-sized electronics manufacturer in Wrocław, shares his experience: “When we couldn’t find enough Polish comparables for our specialized manufacturing process, we expanded our search to include companies from Czech Republic, Slovakia, and Hungary with similar economic conditions. We documented our selection criteria thoroughly, and this approach was accepted during our tax audit.“

Managing Intra-Group Services

Services between related entities are frequently scrutinized by tax authorities, with particular focus on whether services were actually rendered and provided value.

Solution: Maintain robust documentation beyond just contracts and invoices. Email correspondence, meeting minutes, deliverable reports, and project timelines can all help demonstrate that services were actually provided. Implement a benefit test for each service category to articulate the specific value received.

Case Studies

Let’s examine two real-world scenarios that illustrate common transfer pricing challenges for Polish SMEs and how they were successfully addressed.

Case Study 1: Manufacturing Company in Poznań

Situation: A family-owned manufacturing company with 120 employees produced specialized components for its German parent company. The Polish entity was consistently showing losses despite growing production volumes, triggering a transfer pricing audit.

Challenge: The tax authorities questioned whether the pricing model fairly compensated the Polish entity for its manufacturing functions and expertise.

Solution: The company implemented a comprehensive approach:

• Conducted a detailed functional analysis showing that certain key decision-making and strategic functions had migrated to the Polish entity over time without corresponding price adjustments
• Performed a TNMM analysis using operating margin as the profit level indicator, comparing to similar contract manufacturers in Eastern Europe
• Renegotiated the intercompany agreement to include a guaranteed minimum return on costs plus a profit-sharing component for efficiency improvements
• Implemented quarterly monitoring of profit margins against the benchmarking results

Outcome: The company settled the audit with minimal adjustments and established a documentation framework that provided greater certainty for future years. The revised pricing model better reflected the evolved functional profile of the Polish entity, resulting in sustainable profitability.

Case Study 2: IT Services Company in Warsaw

Situation: A growing IT company with 45 employees provided software development services to related parties in the UK and Sweden, charging on a cost-plus basis with a 7% markup.

Challenge: The company struggled with documentation requirements as some projects involved unique, specialized skills while others were routine coding work. The blended markup rate was difficult to justify through benchmarking.

Solution: The company restructured its transfer pricing approach by:

• Segmenting services into “routine” and “high-value” categories based on objective criteria like employee seniority, technology specialization, and project complexity
• Applying the safe harbor 5% markup for routine services while using a higher, benchmarked markup (12-15%) for specialized development work
• Implementing detailed time tracking to allocate costs between the two service categories
• Creating service level agreements that clearly articulated the different value propositions

Outcome: The segmented approach reduced documentation requirements for routine services while properly valuing the company’s specialized capabilities. Overall profitability improved, and the clarified service categories facilitated more transparent conversations with tax authorities.

Best Practices

Based on successful approaches observed across multiple Polish SMEs, these best practices can help streamline your transfer pricing compliance while minimizing risk.

Proactive Planning and Documentation

• Regular Policy Reviews – Schedule annual reviews of your transfer pricing policies to ensure they still reflect business realities and comply with current regulations.
• Contemporaneous Documentation – Document pricing decisions as they happen rather than reconstructing rationales during year-end documentation. This significantly improves the quality and defensibility of your position.
• Involve Multiple Departments – Transfer pricing isn’t just a tax issue. Involve operations, sales, and finance teams in discussions to ensure pricing models reflect actual business functions.
• Technology Solutions – Consider specialized software to track related-party transactions and maintain documentation. Even simple spreadsheet templates can significantly improve consistency and completeness.

Audit Readiness

The best defense is preparation. Even with proper documentation, tax audits can be challenging experiences.

• Maintain a Transfer Pricing File – Keep all relevant documents in a centralized, organized repository that can be quickly accessed if an audit occurs.
• Regular Internal Reviews – Conduct periodic mock audits to identify and address potential weaknesses in your documentation or approach.
• Consistent Narrative – Ensure all documents tell a consistent story about your business model and pricing approach. Inconsistencies across different filings are common audit triggers.
• Monitor Actual Results – Regularly compare actual financial results against your transfer pricing policies and documentation. Significant deviations may require adjustments or additional documentation.

Remember: The goal isn’t just compliance—it’s creating a sustainable approach that appropriately values each entity’s contributions while minimizing tax risks.

Conclusion

Navigating transfer pricing regulations in Poland presents unique challenges for SMEs, but with strategic planning and systematic implementation, these challenges can be transformed into opportunities for better business management and tax certainty.

The key takeaways for Polish SMEs include:

• Understanding your documentation obligations based on transaction types and thresholds
• Leveraging available exemptions and safe harbors to reduce compliance burdens
• Selecting appropriate transfer pricing methods that reflect your business reality
• Maintaining a proactive compliance calendar to meet all statutory deadlines
• Developing internal expertise while strategically using external advisors
• Treating transfer pricing as an ongoing business process rather than a year-end exercise

The Polish transfer pricing landscape will continue to evolve, influenced by both local economic priorities and international standards like the OECD’s BEPS initiatives. Staying informed about these changes through professional associations, tax advisories, and Ministry of Finance publications is essential for maintaining compliance.

By approaching transfer pricing strategically rather than as a mere compliance exercise, Polish SMEs can create sustainable pricing models that fairly reflect value creation while providing tax certainty in an increasingly scrutinized area.

FAQs

Are there any special transfer pricing considerations for start-ups in Poland?

Yes, start-ups face unique challenges in transfer pricing compliance. While no specific exemptions exist for start-ups as a category, newly established companies often benefit from the transaction value thresholds since their related-party transactions may fall below documentation requirements in early years. Start-ups should be particularly careful with intangible assets (like technology or brands) transferred from or to related parties, as these often attract scrutiny despite potentially low initial valuations. Contemporaneous documentation of development costs and valuation methodologies is especially important for innovative companies that may later face questions about early-stage intangible transfers.

Can SMEs apply for Advance Pricing Agreements (APAs) in Poland, and is it worth it?

Yes, SMEs can apply for APAs in Poland, which provide binding confirmation from tax authorities regarding transfer pricing methodology. However, the process requires significant resources—typical costs range from 50,000 to 200,000 PLN depending on complexity, with processing times of 12-18 months. For most SMEs, APAs are most valuable when: (1) you have high-value, recurring transactions that will continue for multiple years; (2) your industry has few comparables, making standard documentation challenging; or (3) you’ve experienced previous transfer pricing disputes. For routine transactions covered by safe harbors, the APA process is generally not cost-effective for smaller businesses.

What are the most common mistakes Polish SMEs make in transfer pricing compliance?

The most prevalent mistakes include: (1) Late preparation of documentation, leading to rushed analysis and overlooked details; (2) Insufficient functional analysis that fails to accurately capture each entity’s contributions, risks, and assets; (3) Over-reliance on policy documents without verifying actual implementation; (4) Inconsistencies between transfer pricing documentation and other tax filings or financial statements; and (5) Inadequate benchmarking studies that use inappropriate comparables or insufficient sample sizes. Perhaps most critically, many SMEs treat transfer pricing as a pure compliance exercise rather than an opportunity to ensure their intercompany transactions properly reflect economic reality, missing potential business insights from the analysis process.