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In connection with the SARS-CoV-2 pandemic, many companies are confronted with problems such as reduced income, production downtime, delays in the supply of materials and raw materials, insolvency of contractors, etc.

In practice, this may lead to situations where the supply chain in transactions with related parties has to be reorganised due to the temporary closure of the plant, lack of staff, the need for longer storage of goods due to lack of transport capacity, etc.

These aspects may have a significant impact on the transfer prices agreed in settlements with related entities, for example by changing the distribution of functions, assets and risks between the various parties to a transaction. In addition, changes in the method of settlement between related parties, extensions of payment terms, distribution of payments in instalments, etc., may in turn require verification that the method and calculation method used corresponds to arm’s length principle.

Given the fact that:

- in certain cases it is important to apply arm’s length principle already during the year,
- significant changes in commercial or financial relations may be treated as restructuring covered by transfer pricing regulations

we suggest that you analyse your transactions from the transfer pricing perspective.

On 23 April 2020, on the pages of the Government Legislation Centre a draft regulation of the Minister of Finance amending the regulation on the exclusion or limitation of the application of Article 26, paragraph 2e of the Corporate Income Tax Act was published. The draft provides for another, already fourth postponement of the entry into force of the new withholding tax collection mechanism, this time to 31 December 2020.

In case, if the amount paid out in favor of the same taxpayer (i.e. the same foreign company) exceeds the amount of PLN 2,000,000.00 during the tax year, the tax remitter will in principle be obliged in the first place, in relation to the surplus above PLN 2,000,000.00 to collect the withholding tax without applying an exemption under the non-preferential Polish tax rate (19% or 20%) and pay it to the Polish tax office. Only after the tax authorities have checked whether the conditions for exemption from the withholding tax or for the application of a preferential tax rate have been met, the collected withholding tax may be refunded.

The postponement of the date of entry into force of the new withholding tax collection mechanism was justified by the announcement of an epidemic on the territory of the Republic of Poland in connection with the SARS-CoV-2 virus infection and the need to limit the obligations related to withholding tax collection for entrepreneurs, as well as the need to ensure proper efficiency on the part of the tax administration. Due to the lack of possibility to precisely determine the date of cancelling the state of the epidemic and mitigating the effects of this state for entrepreneurs, it was proposed to postpone the entry into force of new rules on withholding tax collection until 31 December 2020.

In addition, it should be pointed out that the published draft remains essentially unaffected by the scope of application of regulations other than Article 26 paragraph 2e of the of the Corporate Income Tax Act e.g. the obligation to exercise due diligence when verifying the conditions for applying a lower rate or qualification of the recipient of the debt as the actual recipient.