Transfer pricing in capital groups – how to avoid tax sanctions?

In this article, we discuss the key risks associated with transfer pricing within corporate groups and the practical tools available to effectively mitigate these risks.

The arm’s length principle

The starting point for all intra-group settlements is the arm’s length principle, set out in Section 11c of the CIT Act. Under this principle, related parties are required to set transfer prices on terms that would be agreed between unrelated parties. A similar provision for individuals is contained in Article 23o of the PIT Act.

A breach of this principle gives rise to two types of consequences: the tax authority may determine the taxpayer’s income (loss) at a different amount than that declared, and may also impose an additional tax liability of a punitive nature.

Planned tightening of sanctions – what is changing?

Particular attention should be paid to the draft amendment, which provides for a significant increase in penalty rates. The current basic rate of the additional tax liability, currently set at 10% of the amount of underreported income, may rise to at least 20% (as proposed in the President’s draft tax amendments – document no. 1898 in the Sejm’s legislative agenda).

This is not the only change. The draft also introduces mandatory, periodic customs and tax audits of transfer pricing at the largest taxpayers, i.e. entities whose average annual revenue over the last three years exceeds PLN 5 billion. These audits are to be carried out at least once every three years.

At the same time, the Ministry of Finance has established a specialised Competence Centre for Transfer Pricing within the National Revenue Administration (KAS), signalling a systematic approach to intensifying audit activities.

Criminal tax sanctions

Irrespective of the tax penalties imposed on the company, the management board and the persons responsible for tax settlements within the company (transfer pricing documentation) bear personal criminal tax liability under the Criminal Tax Code.

The current catalogue of sanctions under the Fiscal Penal Code covers the following categories of infringements: delay in preparing local documentation or submitting a TPR form, failure to prepare documentation or preparing it in a manner inconsistent with the actual state of affairs, as well as failure to submit or submission of a false TPR form. As part of another package of amendments (UDER107 – deregulatory changes), it is planned to extend penalties to cases where documentation is prepared that does not contain all the elements required by law.

A fine of 720 daily rates may exceed PLN 40 million. These are therefore sanctions whose scale goes far beyond the purely formal sphere.

The most common areas of risk in capital groups

Experience from previous audits allows us to identify several typical areas where tax authorities most frequently question the arm’s length nature of intra-group transactions.

Intra-group services (management fees, support services) constitute one of the main areas of dispute. The authorities verify whether the services were actually performed (benefit test), whether their scope is properly documented, and whether the margin applied corresponds to market conditions. A particular risk concerns so-called low value-added services; although these are covered by the safe harbour mechanism, they require strict conditions to be met.

Intra-group financing, i.e. loans, guarantees and cash pooling, is the second area subject to intensive scrutiny. From 2026, an updated circular from the Minister of Finance specifying the base interest rate and margin for financial safe harbour purposes will come into force, requiring taxpayers to continuously review the terms of intra-group loans.

Transactions involving intangible assets (IP), i.e. licences, know-how and trademarks, pose a particular risk, especially when they involve payments to group entities in low-tax jurisdictions. The authorities examine whether licence fees are justified by the value actually provided.

Intra-group restructurings, including the transfer of functions, assets and risks between related entities, are subject to particular scrutiny under Article 11k of the CIT Act (the so-called exit fee). Undervaluation of the consideration for the transfer of profit potential is a frequent basis for reassessments.

How to manage risk effectively?

Mitigating the risk of penalties requires action on several fronts simultaneously. Simply preparing documentation is not enough; it is crucial to implement a systematic approach to transfer pricing management.

• A review of the transfer pricing policy should be the starting point. Consideration should be given to conducting a comprehensive analysis of current intra-group settlement models in terms of their consistency with the arm’s length principle. Such a review allows for the identification of potentially contentious areas before they are identified by the tax authority.
• Updating comparative analyses (benchmarking) is a recurring obligation; analyses must be updated at least every three years, and immediately in the event of a significant change in market conditions. In practice, many taxpayers treat this obligation too formally, which, in the event of an audit, leads to the accepted level of remuneration being challenged.
• Documentation of the substance of transactions is of critical importance. Transfer pricing documentation alone cannot replace material evidence confirming the actual course of the transaction, such as minutes, reports, timesheets and correspondence. In a dispute with the tax authority, it is the quality of the source documentation that determines the outcome.
• Transfer pricing adjustments (Section 11e of the CIT Act) constitute an effective mechanism for adjusting prices to market conditions ex post. It is worth noting that the planned legislative changes clarify the rules governing adjustments, in particular confirming the possibility of making them between domestic entities as well, which had previously raised interpretative doubts.
• An Advance Pricing Agreement (APA) provides the highest level of legal certainty. Although the procedure is time-consuming, it protects the taxpayer against a transfer price being challenged within the scope of the agreement. The Ministry of Finance is systematically developing the APA infrastructure – it is worth considering this route for high-value or recurring transactions.

Reporting obligations – 2026 calendar

For a tax year coinciding with the calendar year, the key deadlines are as follows. By the end of the tenth month following the end of the tax year (i.e. by 31 October 2026 for the year 2025), the Local Transfer Pricing Documentation (Local File) must be prepared. By the end of the eleventh month (i.e. by 30 November 2026), the taxpayer is required to submit the Transfer Pricing Report (TPR). By the end of the twelfth month (i.e. by 31 December 2026), the Master File must be in place – provided the taxpayer is required to do so.

It is worth noting that the planned deregulatory changes envisage closer integration of the TPR form with the local documentation, and the declaration regarding the preparation of documentation and the arm’s length nature of prices is to become part of the Local File rather than a separate document submitted as part of the TPR.

Summary

The transfer pricing regulatory environment in Poland is facing a new phase of higher penalties, more frequent audits and greater transparency, as well as higher quality requirements regarding the documentation itself. For corporate groups, this means that transfer pricing management cannot remain a purely compliance-based exercise, carried out once a year when filing the TPR. It requires a systematic, ongoing approach encompassing transfer pricing policy, operational documentation and readiness to defend the adopted solutions before the tax authorities.

It is not advisable to leave transfer pricing documentation obligations until the last minute. Preparing the documentation is a time-consuming process – it is crucial to plan the work in advance and conduct a thorough audit of the scope of obligations.

Author

Mateusz Kowalski

Radca prawny, Senior Associate

I specialize in Polish tax law, particularly income taxes, as well as international tax law. My experience includes, among others. providing ongoing tax advisory services, preparing legal and tax opinions, drafting requests for individual interpretations, conducting tax reviews. I gained professional experience in Warsaw law firms.

View profile →