Poland vs A Sp. z o.o., June 2019, Administrative Court, Case No GD 530/19

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A Polish Subsidiary A SP. z o.o. had incurred a loss in 2012 in the amount of PLN 1,357,333.66 and following an audit the tax authorities issued an assessment whereby the loss was reduced by an amount of PLN 234,019.90.

The disputable issue was whether, in the circumstances of the case under consideration, the tax authorities correctly determined the amount of the applicant’s loss for 2012 in an amount other than that resulting from the correction of the declaration due to the finding that the Company undervalued income from transactions concluded with related entities for a total amount of PLN 234,019.90.

The Administrative Court dismissed the complaint of A SP z o.o.

According the the provided transfer pricing documentation the company had applied a TNMM and determined remuneration based on cost added a fixed percentage of 4% for the parent company, 8% for other companies.

Meanwhile, the mark-ups actually applied by the applicant company in transactions concluded with related entities: B K- S.RA. and K-LLC – (booked on accounts 70101 and 70301) showed that they differ significantly from the above-mentioned mark-ups resulting from the transfer price documentation submitted by the Company, corresponding to market conditions. The applicant did not even try to explain this discrepancy. Therefore, the tax authority correctly calculated the amount of understatement / overstatement of revenues from sales made by the Company to related entities, referring the value of the mark-up resulting from transfer pricing documentation (4% for the parent company, 8% for other companies) to the value of costs related to individual transactions.

In the opinion of the Court, the tax authorities showed without doubt that the transactions concluded by the Company with related entities set conditions different from those that would be determined by independent entities and that, as a result, in the audited tax year the Company reduced sales revenues by PLN 234,019.90, which was a premise to apply on the provisions of art. 11 paragraph 1 updop and annual settlement of the Company for 2012. without considering existing relationships.

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