What is APA?
APA (Advance Pricing Arrangement) is a formal arrangement on transfer prices made between a taxpayer and a tax authority. It is a type of an agreement made between a taxpayer and a tax authority, under which the authority accepts the selection and application of the transfer pricing method used in the relations between the taxpayer and that taxpayer’s related parties. Such an arrangement takes the form of an administrative decision and it is the Head of the National Revenue Administration who is the competent authority that may conclude it.
For businesses, APAs can be an effective tool which allows them to reduce the risk of transaction prices being set incorrectly and of the way they are determined being challenged by tax authorities.
The transfer price is the price for a subject of transaction concluded between related parties within the meaning of the provisions on personal income tax (PIT) and corporate income tax (CIT).
Importantly, APA is an arrangement made for the future. It may be in force for up to five years and, at the end of that period, the arrangement may be renewed (under a simplified procedure) if its key elements have not changed substantially.
It is extremely important for the business owners to protect the data they provide to the authority in the course of the proceedings. The APA procedure ensures that sensitive data are protected adequately – the information provided by the businesses can be accessed by the employee who handles the case, their superior and the Head of the National Revenue Administration. No data (including names) that relate to entities with whom an arrangement has been concluded and to entities that apply for an APA are made public. The statistical data that can be found under the APA Statistics tab and the summary information published under the provisions of the Double Taxation Dispute Resolution and Advance Pricing Arrangements Act, which also includes financial indicators and their value range, are the exception.
Types of APAs
APAs can be unilateral, bilateral, or multilateral. A characteristic feature of unilateral arrangements is that the proceedings take place between the taxpayer and the Head of the NRA.
Bilateral and multilateral arrangements are concluded by the Minister of Finance with the tax authority competent for the other party to the transaction (an entity related to the taxpayer). Once the arrangement is concluded, an administrative decision is issued to the taxpayer.
Description of types of APAs
Unilateral arrangements:
- they limit the risks in respect of transactions between domestic entities;
- there is no guarantee of avoiding double taxation in transactions with a foreign entity;
- the proceedings are relatively short, compared to other types of APAs;
- legal basis: Double Taxation Dispute Resolution and Advance Pricing Arrangements Act;
- fee for domestic entities: PLN 5,000 – PLN 50,000;
- fee for a foreign entity: PLN 20,000 – PLN 100,000;
Bilateral arrangements:
- they limit the risks in respect of transactions between a domestic entity and a foreign entity;
- the risk of double taxation is eliminated;
- the proceedings take longer – two states must agree;
- legal basis: Double Taxation Dispute Resolution and Advance Pricing Arrangements Act and an Agreement on Avoiding Double Taxation under the Mutual Agreement Procedure;
- fee: PLN 50,000 – PLN 200,000;
Multilateral arrangements:
- they limit the risks in respect of transactions between related entities from 3 or more states;
- they serve as a protective instrument designed for the most complex transactions;
- they guarantee the safety for both parties;
- the proceedings last longest;
- legal basis: Double Taxation Dispute Resolution and Advance Pricing Arrangements Act and an Agreements on Avoiding Double Taxation under the Mutual Agreement Procedure;
- fee: PLN 50,000 – PLN 200,000;
Where can I pay for the request to have APA issued
The fee is to be paid within 7 days from the date of submitting the request to the account of the Ministry of Finance maintained by the National Bank of Poland:
Name of the account holder:
Ministerstwo Finansów [Ministry of Finance],
ul. Świętokrzyska 12, 00-916 Warszawa [Warsaw]
Bank’s name: Narodowy Bank Polski O/O Warszawa
[National Bank of Poland, Warsaw Branch]
Bank Account number: 10 1010 1010 0038 2522 3100 0000
Procedure of concluding APAs
It has been possible to conclude APAs since 1 January 2006.
Upon request of a domestic entity, unilateral, bilateral and multilateral arrangements may be concluded for a maximum period of 5 years [1].
The legal basis for conducting bilateral or multilateral APAs is also provided by the provisions of the relevant double taxation agreements that govern the mutual agreement procedure (equivalents to Article 25 of the OECD Model Tax Convention).
Before submitting the request officially, which involves the payment of a fee, the taxpayer may ask the Head of the National Revenue Administration for clarification of any doubts regarding the conclusion of the arrangement. For this purpose, representatives of the Head of NRA invite the taxpayer to a meeting, during which they answer questions concerning, among other things, the purpose of concluding an arrangement, the scope of necessary information, the procedure and deadline for concluding an APA. It is an unofficial procedure and it is free of charge.
For more information on the APAs, see Section III of the Double Taxation Dispute Resolution and Advance Pricing Arrangements Act and the FAQ section –Frequently Asked Questions and Answers.