New transfer rules
In August 2004 the Ministry of Finance presented a project launching the procedure of Advanced Pricing Agreements (APAs) between the taxpayer and the tax administration. APAs allow companies to verify the methodology of fixing prices in transactions with their affiliates or subsidiaries, both domestic and foreign.
When a company moves cash from one subsidiary to another, this is often viewed as taxable income. APAs will deal with the taxation of these transfer prices and will prevent companies being accused of price irregularities, such as below-cost selling to their affiliates, thereby creating unfair competition. These transfer prices can also be used by the Ministry of Finance to decide on a firm's value and thereby the level of tax it should pay.
"APA is a new invention in our reality," says Józef Banach, counselor at the tax department in PricewaterhouseCoopers. "It is an excellent institution." The basic advantage of APA is that it allows firms and the Treasury to decide on a method of fixing the level of transfer prices, which is compliant with market-price regulations.
However, signing an APA will entail huge costs that the company will have to cover. The cost will depend on the type of agreement and will range from zł.10,000 to zł.100,000, making Poland the most expensive country in the world in this respect.
In the US, APAs are an everyday procedure. In 2004 there were more than 80 APAs recorded. Gaining one is a large logistical operation, including five stages: application, due diligence, analysis, discussion, and finally, agreement.
The Sejm subcommission is now working on the tax legislation and the APA regulations should come into effect at the beginning of 2006.
A.B.
When a company moves cash from one subsidiary to another, this is often viewed as taxable income. APAs will deal with the taxation of these transfer prices and will prevent companies being accused of price irregularities, such as below-cost selling to their affiliates, thereby creating unfair competition. These transfer prices can also be used by the Ministry of Finance to decide on a firm's value and thereby the level of tax it should pay.
"APA is a new invention in our reality," says Józef Banach, counselor at the tax department in PricewaterhouseCoopers. "It is an excellent institution." The basic advantage of APA is that it allows firms and the Treasury to decide on a method of fixing the level of transfer prices, which is compliant with market-price regulations.
However, signing an APA will entail huge costs that the company will have to cover. The cost will depend on the type of agreement and will range from zł.10,000 to zł.100,000, making Poland the most expensive country in the world in this respect.
In the US, APAs are an everyday procedure. In 2004 there were more than 80 APAs recorded. Gaining one is a large logistical operation, including five stages: application, due diligence, analysis, discussion, and finally, agreement.
The Sejm subcommission is now working on the tax legislation and the APA regulations should come into effect at the beginning of 2006.
A.B.
