Transfer pricing: type of base rate and spread in the safe harbour regime

1 January 2019  was the effective date of the Announcement of the Minister of Finance of 21 December 2018 concerning the type of the base rate and the spread used for transfer pricing purposes in the area of personal income tax and corporate income tax.

The announcement of the type of the base rate and the spread used in determining the interest rates for transactions involving bank and other loans or bond issues between associated enterprises is a necessary precondition for the taxpayer to apply a new solution – the safe harbour regime.

The safe harbour regime is a huge simplification as it relieves the taxpayer from the excessive administrative burden otherwise imposed by a country’s general transfer pricing rules, and can be applied to simple forms of debt financing in transactions between associated enterprises involving relatively small amounts. Under this simplified regime, the tax administration does not assess the taxpayer's income from interest on such transactions, on the one hand, and, on the other hand, the taxpayer is exempted from the obligation to prepare the benchmarking study or to demonstrate compliance of these transactions with the arm’s length principle. The decision to apply this regime (with all other conditions set out in Article 23s(1) of the PIT Act or Article 11g(1) of the CIT Act being met) is voluntary and is entirely up to the taxpayer.

Since the beginning of the year, the spread has been 2 percentage points (which is maximum for the borrower and minimum for the lender) or, where the base rate is less than 0, the sum of the absolute value of the base rate and the 2 percentage points. The base interest rate can be: WIBOR 3M (for loans in PLN), LIBOR USD 3M (for loans in USD), EURIBOR 3M (for loans in EUR), LIBOR CHF 3M (for loans in CHF) and LIBOR GBP 3M (for loans in GBP).

The announcement will be issued by the minister in charge of public finance at least once a year and whenever economic conditions significantly change making the rate of the spread set in the announcement significantly departed from the rates of the spread applied on the market.

The safe harbour  simplification referenced in the announcement only applies to taxpayers entering into transactions with associated enterprises which meet the conditions set out in Article 23s(1) of the PIT Act / Article 11g(1) of the CIT Act. We therefore recommend checking the interest rates and other conditions against your controlled transactions involving bank and loans or bond issues.

If you have any questions or doubts regarding safe harbour, do not hesitate to contact the Rödl & Partner experts.

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