The general rule is that a price charged between two parties should be established at market rates. The directive especially relates to the prices charged in international transactions between related parties. In order to control the prices, the tax authorities and treasury control authorities may investigate whether the income generated from dealings with related parties was properly declared.
The following methods for determining transfer pricing are provided:
1. Comparison of uncontrolled prices method
The arm's length price is determined on the basis of actual prices used in comparable transactions between independent parties.
2. The resale price method
The arm's length price is determined by deducting the normal mark-up applied to the resale of the goods/services when sold to an unrelated party.
3. The cost-plus method
Here, an appropriate mark up is added to the supplier's production costs. The mark up should reflect the mark up achieved on similar transactions with non-related parties.
Finally, where the above methods may not be used, the following method is to be adopted:
4. Profit transaction method
Where the purchase price is difficult to establish, it is the profit margin which is used to establish whether the arm's length principle is respected. However, reductions in profit due to other normal economic or organisational factors are of course allowed.
This information was correct as of 11 September 1997.
Tax laws and practise are constantly being revised and, whilst every effort is made to ensure that the information in this tax newsletter is accurate and timely, no decision should be taken on the basis of the information herein without first consulting with KPMG Polska.
Should you have any questions in relation to the above issues, please contact:
Oliver Sinton KPMG Polska LIM Center - Marriott Hotel - IX floor Al. Jerozolimskie 65/79 00-697 Warsaw, Poland Tel: +48 (22) 630 7236 Fax: +48 (22) 630 6355
